## Cash Flows

The process of estimating future cash flows is one part of a methodology called pro forma analysis. In pro forma analysis, the analyst tries to estimate what may happen in the future if certain actions are taken today, so it's also sometimes simply referred to as a What if analysis. There are a number of different rationales for performing a proforma analysis for example, the CFO of a firm might want to analyze the firm's balance sheet if more equity is issued, or the accounting department...

Annuities due, in case you've never heard of them, are simply annuities where the payments happen at the beginning of each period instead of the end, as they do with ordinary annuities. There are adjusted versions of PVA and FVA for these types of annuities, as well as new rules concerning where those adjusted formulas will give you values on the timeline. However, they're probably not worth learning you can usually handle almost all problems involving annuities due using the ordinary annuity...

## Quiz

Suppose that you were calculating the dividend yield on a stock you were considering buying and intended to back out the expected capital gains yield as described in the previous section. Using the bid price instead of the ask price or instead of calculating P0 yourself as P0 in your calculation would cause a. Both the dividend yield and the expected capital gains yield to be too high b. Both the dividend yield and the expected capital gains yield to be too low c. The dividend yield to be...

## Present and Future Value

The Time Value of Money TVM is the central concept behind most of corporate finance, and we'll be using it later in this book to value shares of stock, bonds, and projects. In more advanced courses, it is even used to value entire companies. In this chapter, we're going to focus on introducing the concepts behind TVM in a more general setting. In fact, most of the examples we'll use will come from personal finance, and you'll most likely find them very helpful in your personal life. Many of you...

## Common Base Year Analysis

Another handy tool for analyzing changes in a firm's position over time is the common-base year analysis, which involves choosing a base year and then expressing other years in terms of how large each item is relative to its value during the base year. Choosing 2006 as the base year for an analysis of TMA, we get the results shown in Figure 4-5. The common-base year figures shown in Figure 4-5 represent the relative size of the corresponding year 2007 item compared to the same item for 2006 a...