F4MM3 Flashcards
When to use present value of $1
single lump sum
When to use present value of ordinary annuity
multiple identical payments
end of month
use as assumption if they do not specify
When to use present value of annuity due
multiple identical payments
beginning of the month
PV formula
FV/(1+r)^n
How to switch between PV and FV
inverses 1/PV = FV and vice versa
Annuities
multiple identical CF
Key words to use an annuity due
starting today, beginning now, immediately
Future Value
in other words, compound interest
amount that will be accumulated in the future if $1 is invested now
Long term liabilities are recorded at
present value
they are not payable within the current operating cycle or reporting year
How to distinguish liability from equity
Libaility: maturity date or obligation
Equity: no maturity date
PS: Equity or Liability
PS is equity
Mandatory redeemable PS is liability
Note Payable
recorded at PV at date of issuance
if there is no interest rate, you have to impute the market rate
General presumption for interest rate
arm’s length
Fair and Accurate
When do you impute interest for notes payable
when there is no interest or there is an unreasonable interest rate
When is imputing interest not required
ST note payable
or interest rate is given
