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Chapter 8: Decision Making Support

Chapter 8: Decision Making Support. Business Loan. Agenda. Evaluate the cost of borrowed money Analyze the profitability of a business enterprise Explain the benefits of placing multiple graphs on the same page Utilize fixed costs and variable costs in a break even analysis

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Chapter 8: Decision Making Support

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  1. Chapter 8: Decision Making Support Business Loan

  2. Agenda • Evaluate the cost of borrowed money • Analyze the profitability of a business enterprise • Explain the benefits of placing multiple graphs on the same page • Utilize fixed costs and variable costs in a break even analysis • Engage in “What If” data manipulation scenarios to realize business objectives • Conditionally format data meeting predetermined criteria • Choose and successfully employ Excel techniques to solve a complex task.

  3. Functions are formulas built into Excel Average Standard Deviation Sum

  4. The payment function calculates loan payments automatically =PMT(APR, Months, AmountFinanced APR Interest Rate per Payment (if monthly, divide by 12) Months Number of Payments (if monthly, multiply by 12) Amount Financed Today’s Cost (known as present value)

  5. Monthly loan payment example =PMT(APR (Monthly), Months, AmountFinanced

  6. Compound Interest Total Mortgage Payments: $386,512 Total Interest Paid: $186,512 Total Mortgage Payments: $266,288 Total Interest Paid: $66,288

  7. Use conditional formatting to highlight particular outcomes Conditionally formatted to show payment amounts lower than the Current payment of $101 Conditionally formatted to show Profit amounts higher than current Profit of $4,961

  8. L1 Assignment

  9. L2 Assignment

  10. Summary/Conclusion • Businesses sometimes need loans to cover startup costs. Ideally, these should be business loans rather than personal loans. • Functions are a stored formula. • Functions are pretested and debugged. They sometimes simplify complex mathematical formulas and/or eliminate busywork. • One disadvantage of functions is that you sometimes lose a sense of how the information was derived. • Functions are in a sense like “buying” a solution rather than building it yourself. • The SUM function is the most common function in Excel. It adds up multiple numbers.

  11. Summary/Conclusion • The PMT function calculates loan payments. Since most loan payments are monthly, the function needs to be modified by dividing the interest rate by 12, but multiplying the number of payment periods by 12. • The United States Federal Government mandates that loan terms be expressed in a standardized way so that buyers are fully informed of credit terms and can comparison shop. • Because of compound interest, loans should be taken out for as few years as possible. Compound interest is especially painful for credit cards with high interest rates. • Conditional formatting highlights data of a specific outcome range.

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