FIL 240 Lecture11Outline of Last Lecture I. Probability distributiona. Contribution of operating leverageb. Contribution of financial leverageII. Volatility a. Standard deviation equationb. Alternate SD equationc. Fixed expensesd. Percent chanceIII. Time seriesIV. Coefficient of variationa. Measure of riskb. Contribution format income statementc. How to calculate the coefficient of variationOutline of Current Lecture I. Lowering Fixed CostsII. Time Value of Moneya. Definitionb. Future Value Equationc. Present Value Equationd. Finding “k” and “n”e. FV Annuallyf. FV Semiannuallyg. Effective YieldCurrent LectureVolatilityI. Lowering fixed costs – more FC, more riska. Outsourcingb. Cutbacks – lay off employeesc. Turn fixed costs into variable costsd. Dynamic efficiency – technological advances such as 3D printers instead of mechanical productionII. Time value of money – core of financial systemThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.a. Money today is worth more money than in the future - $1000 today is not the same as $1000 next year, there must be an incentive to delay receiving the money nowb. Future value(FV) = present value(PV)*(1+k)n c. Present value(PV) = FV/(1+k)n OR FV*(1+k)-nd. k & n depend on the compound interest ratee. FV of $50 in 6 years at 8%, compounded Annually: FV = 500*(1+.08)6 = $793.44f. Semiannually: FV = 500*(1+(.08/2))(6*2) = 500*(1+.04)12 = $800.52g. Effective yield: (1+(annual k/# comp.))# comp. – 1 = (1+(.08/2)2 – 1 =
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