1. Principles of Finance with Excel, 2 nd edition Instructor materials Chapter 1 Introduction to Excel

2. Why study finance?  You need $1,000 in two years. Your bank pays 10% interest. How much to save each year?  You want to buy a house to rent it out. How should you evaluate this decision?  How do you measure financial risk? PFE, Chapter 1Introduction2

3. Finance in business  A company is considering replacing an existing machine with a newer, faster, and more expensive machine.  How do we make this decision?  A division of your company wants to develop a new product. How should the company decide whether this is worthwhile? PFE, Chapter 1Introduction3

4. Finance in business (2)  How do we make a financial planning model for a company?  How do we use this model to value a company?  Should my company finance itself with only equity? or a mixture of debt and equity? PFE, Chapter 1Introduction4

5. 8 principles of finance 1. Buy assets that add value, avoid buying assets that don’t add value 2. Cash is king 3. The time dimension of financial decisions is important 4. Know how to compute the cost of financial alternatives PFE, Chapter 1Introduction5

6. 5. Minimize the cost of financing. 6. Take risk into account. 7. Markets are efficient and deal well with information. 8. Diversification is important. PFE, Chapter 1Introduction6

7. Excel!  EVERYONE uses it!  The biggest technical skill needed in business  Use Excel to do finance and you’ll have a double advantage: Both finance and Excel PFE, Chapter 1Introduction7

8. Excel 2003, Excel 2007, Excel 2010  All versions basically the same  Differ in minor stuff (graphics, toolbars)  All spreadsheets for Principles of Finance with Excel work in all versions of Excel (though see next slide) PFE, Chapter 1Introduction8

9. The small print  PFE files are saved in the Excel 2007/2010 format  To open in Excel 2003, download the compatibility pack from Microsoft: PFE, Chapter 1Introduction9

10. 5 rules for financial modeling  These rules will help you build better spreadsheets  Readibility, Logic, Simplicity—this is what you should strive for PFE, Chapter 1Introduction10

11. Rule 1: Try to put important variables in one place PFE, Chapter 1Introduction11

12. Rule 2: Don’t hard-wire numbers  Use formulas instead of numbers PFE, Chapter 1Introduction12

13. Rule 3: Avoid using blank columns to accommodate cell “spillovers” PFE, Chapter 1Introduction13

14. Rule 4: Make your Excel default one sheet PFE, Chapter 1Introduction14 Office Button  Excel Options

15. Rule 5: Turn off the “auto jump- down” feature  Excel default: when you hit Enter, the cursor jumps down one cell  In finance, we need to carefully look at what we’ve entered into the cell …  So turn this off (next slide) PFE, Chapter 1Introduction15

16. PFE, Chapter 1Introduction16

17. Adding “Getformula” to your spreadsheet  All PFE spreadsheets embed a small program called Getformula that allows you to see what you’ve written in a cell  When you open a PFE spreadsheet, Excel will ask you if you want to open Getformula: PFE, Chapter 1Introduction17

18. PFE, Chapter 1Introduction18 You may have to tinker with your spreadsheet Security settings! See PFE, Chapter 1 for details.