190 PART 2 Important Financial Concepts
Spreadsheet Use The number of years to pay off the loan also can be calculated
as shown on the following Excel spreadsheet.Review Questions
4–17 How can you determine the size of the equal annual end-of-period deposits
necessary to accumulate a certain future sum at the end of a specified future
period at a given annual interest rate?
4–18 Describe the procedure used to amortize a loan into a series of equal peri-
odic payments.
4–19 Which present value interest factors would be used to find (a) the growth
rate associated with a series of cash flows and (b) the interest rate associ-
ated with an equal-payment loan?
4–20 How can you determine the unknown number of periods when you know
the present and future values—single amount or annuity—and the applic-
able rate of interest?SUMMARY
FOCUS ON VALUE
Time value of money is an important tool that financial managers and other market partici-
pants use to assess the impact of proposed actions. Because firms have long lives and their
important decisions affect their long-term cash flows, the effective application of time-
value-of-money techniques is extremely important. Time value techniques enable financial
managers to evaluate cash flows occurring at different times in order to combine, compare,
and evaluate them and link them to the firm’s overall goal of share price maximization. It
will become clear in Chapters 6 and 7 that the application of time value techniques is a key
part of the value determination process. Using them, we can measure the firm’s value and
evaluate the impact that various events and decisions might have on it. Clearly, an under-
standing of time-value-of-money techniques and an ability to apply them are needed in
order to make intelligent value-creating decisions.