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PRINCIPLES OF FINANCE WITH EXCEL
by Simon Benninga

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other material on financial modeling

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Two sample PFE
chapters are downloadable

Chapter 7: Basics of capital budgeting
Spreadsheets for Chapter 7: Chapter 7 examples , Chapter 7 exercises
Chapter 12: Portfolio statistics: introduction
Spreadsheets for Chapter 12: Chapter 12 examples , Chapter 12 exercises

Note: The Excel notebooks which accompany PFE include a macro-defined function called getformula( ) which keeps track of cell references. When you open the notebook, Excel will notify you that there’s a macro and ask if you want to enable it. If you want to see the cell references as in the text, click on Enable Macros .

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·         Powerpoints for selected chapters

·         Additional problems

·         Exam questions

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PRINCIPLES OF FINANCE WITH EXCEL
CONTENTS

Preface: How to read these materials; what's assumed, etc.
Also includes a roadmap to the book

Sections of the book:

·         Section 1: Introductory chapters

·         Section 2: Capital Budgeting

·         Section 3: Portfolio models

·         Section 4: Valuing stocks and bonds

·         Section 5: Capital structure and dividend policy

·         Section 6: Options and derivatives

·         Section 7: Excel topics

Section 1: Introduction go back to contents
File	Contents	Spreadsheets
Overview to introduction
Chapter 1: Introduction to Principles of Finance with Excel.	What is finance? Stress on simple examples of both personal and corporate finance as problems solved in the book. Discussion of importance of Excel.	Chapter 1 examples
Chapter 2: Business organization and taxes	This chapter discusses 4 forms of business organization and income taxation. Excel is a great way to compute income taxes. We also discuss the "double taxation" of corporate income.	Chapter 2 examples Chapter 2 exercises
Chapter 3: Basic accounting concepts	Capital budgeting and accounting are closely related, but intro students often have very weak accounting backgrounds. This chapter aims to bridge the gap by refreshing basic accounting concepts.	Chapter 3 examples Chapter 3 exercises
Chapter 3 case: Valuing Anytown Travel Services This case is a valuation case based on the story in Chapter 3. Read note in next column. Chapter 3 Mini-Case Case solution available on request	Some instructors will want to teach Chapter 3 after they have taught the basic capital budgeting Chapters 5-9. These instructors might want to use the data in Chapter 3 to value Anytown Travel Services. This is case is not suitable to accompany Chapter 3 if taught before the capital budgeting chapters of the book.	Chapter03Mini-Case template This template sets up all the calculations.
Chapter 4: Cash management		Chapter 4 examples Chapter 4 exercises

Section 2: Capital Budgeting
go back to contents

File

Contents

Spreadsheets

Overview to capital budgeting chapters

Description, with some information on Excel background

Chapter 5: Introduction to time-value of money

Time-value of money: Future value, present value, IRR, ... . Excel functions PV, IRR, NPV, PMT, FV.

Chapter 5 examples

Chapter 5 exercises

Chapter 6: What does it cost?

Applications of time-value of money. Effective annual interest rate, APR, application to credit cards, mortgages, simple lease analysis, car leases. Also multiple compounding periods and continuous compounding.

Chapter 6 examples

Chapter 6 exercises

Chapter 6 cases

Chapter 6 mini-cases
Current version: 18mar03

Analyzing student loans

Three examples of APR from Web. You're asked to compute the EAIR for each case.

U.S. student loans have: subsidized interest rate, grace periods before repayment, and long repayment periods.

Student loan Excel notebook

Chapter 7: Basics of capital budgeting

Real estate mini-case

Comparing NPV and IRR, ranking projects, sunk costs, foregone opportunities, salvage values, the effect of taxes, introduction to cash flows

The case discusses equity cash flows for a real estate investment. Also Excel functions PPMT and IPMT.

Chapter 7 examples

Chapter 7 exercises

Template for mini-case

Mini-case answers

Chapter 8: More issues in capital budgeting

Mini-case: Zero percent auto loans

Problems with IRR, projects with different lifetimes, mid-year discounting, more on taxes, inflation, leasing with taxes

Chapter 8 examples

Chapter 8 exercises

Zero percent auto loan case solution: spreadsheet, text

Chapter 9: Deriving the WACC

Weighted-average cost of capital from start to finish. Uses the Gordon dividend model to derive cost of equity. Uses the concept of funding cost as a possible candidate for the discount rate.

Chapter 9 examples

Chapter 9 exercises

Chapter 9 case : Wachovia Bank mini-case

Computing the cost of equity for Wachovia using Gordon model.

Wachovia bank case data

Chapter 10: DCF valuation with financial planning models

Building a pro forma model in Excel. Doing a discounted cash flow (DCF) valuation using a pro forma model.

Chapter 10 examples

Chapter 10 exercises

Chapter 10 template

Chapter 10 Case: Intel and AMD, building a financial model

Analyze the financial statements of Intel and AMD and use the information to build a financial model.

Intel-AMD, financial data for case

Chapter 10 case: Valuing PPG

This case (it's long--almost 50 pages) analyses PPG's financial statements and values the company

Valuing PPG

PPG case, appendix

Section 3: Portfolio Analysis and CAPM go back to contents
File	Contents	Spreadsheets
Overview to portfolio chapters
Chapter 11: What is risk?	An introduction to the concept of financial risk.	Chapter 11 examples Chapter 11 exercises
Chapter 12: Portfolio statistics: introduction	Mean, variance, covariance, regression--all with appropriate Excel functions and real-world examples	Chapter 12 examples Chapter 12 exercises
Chapter 13: Portfolio returns and the efficient frontier	Why diversify? The efficient frontier. The end of the chapter deals with a 3-asset problem.	Chapter 13 examples Chapter 13 exercises
Chapter 14: The CAPM and SML	The capital market line (CML) and the security market line (SML). The concept of beta.	Chapter 14 examples Chapter 14 exercises
Chapter 15: Using the SML to measure performance	Calculating beta, diversifiable versus idiosyncratic risk, investment performance evaluation.	Chapter 15 examples Chapter 15 exercises Jack and Jill
Chapter 16: Using the SML for Cost of Capital Calculations	Computing the cost of equity, cost of debt, WACC, asset beta, other related issues	Chapter 16 examples Chapter 16 exercises
Mini-Case--Computing the WACC for Kellogg	Gives all the information to do a WACC calculation for Kellogg (using the SML).

Section 4: Valuing Securities go back to contents
File	Contents	Spreadsheets
Overview to security valuation
Chapter 17: Market efficiency	Keeping your mind straight about valuation: What markets do and don't tell us.	Chapter 17 examples Chapter 17 exercises
Chapter 18: Bond valuation Mini-case: TWA bonds	Some explanations about bonds. Treasuries--T-bills and bonds. Calculating YTM (annualizing the YTM) and valuing bonds. Excel functions: XIRR and Yield.	Chapter 18 examples Chapter 18 exercises TWA case
Chapter 19: Share valuation Chapter 19 Appendix: Valuing Procter & Gamble	Four methods of share valuation: Efficient markets, FCF discounting, direct equity cash flow valuation, and multiples. Applying FCF valuation to Procter & Gamble. Uses asset beta and the new concept of a two-stage Gordon cost-of-equity model.	Chapter 19 examples Chapter 19 exercises Procter & Gamble appendix

Section 5: Capital Structure and Dividend Policy go back to contents
File	Contents	Spreadsheets
Overview to capital structure chapters
Chapter 20: Capital structure and value of the firm--theory	Modigliani-Miller and Miller models with taxes (corporate and personal).	Chapter 20 files Chapter 20 exercises
Chapter 21: Capital structure and value of the firm--practical implications	Calculating asset betas. Some examples which show that leverage does not affect the WACC	Chapter 21 files Chapter 21 exercises
Chapter 22: Dividend policy	Do dividends affect corporate value?	Chapter 22 files Chapter 22 exercises

Section 6: Options go back to contents
File	Contents	Spreadsheets
Overview to option chapters
Chapter 23: Introduction to options	Definitions, profit graphs, etc.	Chapter 23 examples Chapter 23 exercises
Chapter 24: Properties of option prices	Arbitrage properties of option prices	Chapter 24 examples Chapter 24 exercises
Chapter 25: Valuing options: The Black-Scholes formula	The most famous option pricing model explained. Discussion of Black-Scholes, volatility (implied and historical). A short discussion of real options.	Chapter 25 examples Chapter 25 exercises
Chapter 26: Valuing options: The binomial model	Basic binomial model. Valuing American options with early exercise	Chapter 26 examples Chapter 26 exercises

Section 7: Technical Chapters go back to contents
File	Contents	Spreadsheets
Overview to Excel chapters
Chapter 27: Using Excel--starting off	Some suggestions about using Excel: Copying (relative & absolute), printing, formulas. Assumes a tiny bit of pre-knowledge (but not more).	Chapter 27 examples Chapter 27 exercises
Chapter 28: Graphing in Excel	More on graphs than is contained in Chapter 27.	Chapter 28 examples Chapter 28 exercises
Chapter 29: Common Excel functions	Most of the functions used in the book. Some functions are contained in the other relevant chapters of Section 7: for example, the date functions in Chapter 31, data functions in Chapter 33.	Chapter 29 examples Chapter 29 exercises
Chapter 30: Data tables	The best way to do sensitivity analysis in Excel	Chapter 30 examples Chapter 30 exercises
Chapter 31: Dates in Excel	This chapter shows you how to exploit Excel's facility with dates. Includes a discussion of the XNPV and XIRR functions.	Chapter 31 examples Chapter 31 exercises
Chapter 32: Goal seek and Solver	Two Excel features used throughout the book. Goal Seek usually works fine, but Solver is often better.	Chapter 32 examples Chapter 32 exercises
Chapter 33: Data manipulation	Sorts; filters; the functions Dsum, Daverage, etc.; importing text files; conditional formatting	Chapter 33 examples Chapter 33 exercises Dell.txt (part of exercises)
Chapter 34: Word and Excel	How to transfer numbers and charts from Excel to Word and make things look nice	Chapter 34 examples