The Business Master (3rd Edition)

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FINANCIAL WIZARD (TM) Version 5.3 Copyright (C) 1989-1993 SILVASOFT SOFTWARE, INC. P.O. BOX 3401 Kingsport, TN. 37664 Financial Wizard is a program designed to help you get better control of investment and loan analysis. It contains dozens of very powerful, yet simple to use financial tools; a notepad, pop-up calculator, calendar, and short-cut keys makes solving and analyzing most financial problems a snap. Financial Wizard can solve most standard financial calculations for future and present value, interest rate, amortization and growth, depreciation, tax-free vs non-tax free yields, T-Bill analysis, calendar and date calculations by simply inputing 2 or 3 options. Above all, Financial Wizard is very easy to use. Although you are encouraged to read through this complete manual to become familiar with all the options the program offers, the very intuitive nature of Financial Wizard, with full mouse support and descriptive input screens should make most users very confident in using the program within minutes. Please remember that Financial Wizard is being distributed as a SHAREWARE program. You are encouraged to test drive the program and pass on copies to friends, upload to BBS's, etc. If you continue to use the software after a 30 day trail period you should register your copy. Please see additional information regarding SHAREWARE and Financial Wizard registration at the end of this manual. The SilvaSoft holds all Copyrights to the Financial Wizard software series. The distribution of this software whether by floppy disk, electronic means or other must include both the executable program, "FINWIZ.EXE" and this manual "FINWIZ.DOC". Registered users are offered many benefits such as a free upgrade to next major release of program, phone support, priority notification on future upgrades with option to automatically have all future upgrades sent to you when available, etc. Several major enhancements are planned in your free upgrade to version 6.0 of Financial Wizard. Retirement Planning, Investment Adjustments for inflation, ARM loan calculations, etc. Your registration and support of this program will assure you future upgrades and will allow Financial Wizard to continue to be enhanced with new features. ==== GETTING STARTED ==== To start Financial Wizard type FINWIZ at the drive and directory containing the program. Other options for loading the program may exist depending on how your computer is configured, whether you use menu software, etc. Financial Wizard is optimized for a color monitor and will automatically configure itself for color. The program will work on a 100% IBM compatible monochrome card. If you are using a monochrome video card or Hercules monographics video card you should load Financial Wizard with the "M" command line parameter to configure the program for a monochrome display. Many non- color laptops may also prefer to load Financial Wizard in Monochrome mode. FINWIZ M *** Amortization Schedule Plus *** The Amortization Schedule Plus is a very flexible financial planning tool which can be used for both loans and investment analysis. If you are just starting to work with Financial Wizard you may wish to try some of the other options before mastering this section. You need only enter information for any three of the four '*' options listed. The Amortization program will automatically calculate for the unknown value. If you choose to enter information for all four items, Financial Wizard will calculate for time. (i.e. Number of Periods). === Example #1 -Home Loan (Enter - 100000 for Principal, 10 for Interest Rate, 360 for Number of Periods. M for payments are monthly) Note : The $100,000 home loan is entered without using "$" or ",". Payment was left blank which Financial Wizard automatically calculated to be $877.57, representing the monthly principal and interest payment for the loan. A complete amortization schedule is produced . Each months payment is broken down by period, current principal, current interest, cumulative interest, and unpaid principal. Using the HOME, END, Page Up, Page Down, Up Arrow and Down Arrow Keys as well as the mouse on the selection scroll bar on the right, we can quickly move around to any section in the amortization table. The "ESC" key is a universal exit key for all sections and all pop-up options in Financial Wizard. It will always move you back to the previous selection. At the bottom of the amortization table are function key selections F1-F6. If you would like the amortization table to display periods in "month-year" format rather that numerical periods (or "Year" format if only making 1 payment per year), then hit function key "F2" to pop-up the calendar. Select day "15" of any Month/Year on the calendar to change format. The calendar Month/Year combination you select will automatically start at the first period from your selection. Additional information on calendar options are covered in the calendar section of this manual. Select day "1" of any Year/Month to return to numeric period count. Your hardcopy reports will automatically print showing whichever period format you have selected. Printing the schedule is available by selecting the "F5" key to print. The default printer is assumed to be "LPT1:". If you wish to have the amortization schedule printed on either "LPT2:", "LPT3:" or "LPT4:", then you must load Financial Wizard with a 2,3, or 4 parameter command to specify which printer you want Financial Wizard to use. Example: FINWIZ 2 <---- Sends output to Line Printer 2 FINWIZ 3 <---- Sends output to Line Printer 3 If your printer is unable to print for whatever reason, Financial Wizard ignores your print request and you must try again after you have corrected the problem with the printer. Up to five lines for a title can be automatically placed on both the printed and filed amortization schedule reports. To enter titles on your reports hit "F4" to select the title window editor. The Editor used the same commands as the pop- up notepad. If a file called "FWTITLE.FW" exists in the directory from which Financial Wizard was loaded, then that file is automatically loaded into the Title Editor. This allows you to produce reports that have standard titles for company information, etc. You will still have the option to customize any section of the Title screen while in the Editor. Information in the title lines editor is retained for as long as you continue the Financial Wizard session. "F6" File, allows you to save copies of your amortization reports to a file. The reports are save in the directory in which Financial Wizard was loaded from. The default file name for saving is "FWAMORTZ.FW". You may overwrite this name with other file names when saving your reports. The files can then be loaded into other programs such as word processors, etc. === Example 2 - Home Loan with Accelerated Payments (Enter - 100000 for Principal, 10 for Interest Rate, 360 for Number of Periods, M for payments made monthly, 1000 for Payment) From Example #1, we know that our monthly payments for principal and interest would be $877.57. We will run the same analysis but this time we will accelerate the pay off date by paying $1000/month. The program will ignore the value of 360 in number of periods, and will automatically calculate the new time period. ( We could have left Number of Periods blank). The amortization schedule will show that the loan will be paid off in 216 months rather than 360 months. The total interest collected on the 216 month loan will be $115,906.50 vs $215,929.80 for the 360 month loan. This example does show that a small difference in accelerated payments, can make a very large difference in interest costs. Of course, you would need to factor in tax mortgage deduction benefits, plus the investment future value of the extra principal payments to determine if accelerated payments are your best option. (As you work with Financial Wizard, you will quickly see that it will assist you in making those types of decisions.) We have seen some of the loan capabilities that the Amortization Schedule has. Now lets see why we added a Plus to the name. One very unique feature of Financial Wizards' Amortization Schedule Plus is that it allows you to perform investment growth analysis. Lets say that we wish to start investing in an IRA. We will add $2000 per year for 30 years. We estimate that this IRA will return a 10% growth rate per year. What is the estimated value of this investment after 30 years of payments. === Example #3, IRA Growth Beginning of Period (Enter: .0001 for Principal, 10 for Interest Rate, 30 for Number of Years, Y for yearly payment, -2000 for Payment.) This example brings 2 new concepts to the Amortization Schedule Plus section in Financial Wizard. A very small number (.0001) for Principal, and a negative number (-2000) for payment. We have not previously made any deposits so our principal is 0. The program will not allow you to enter 0 for the principal so we trick it by entering a very small number. In this example .0001 is 1/100th of 1 cent. We enter 10 for the yearly interest rate and 30 for the number of periods. (We are making 1 payment per year for 30 years.) Since we are depositing $2000 per year into a growth investment rather than making a loan payment we place a minus in front of the payment amount. Negative amounts entered for payments automatically are considered amounts which you are adding to your personal savings per period, and not loan payments. The principal will increase, showing the growth of the investment. Immediately after we make payment 30 the value of the investment will be $328,988. You can track the value of the investment at any period in time by looking at the report that is produced. This example assumes a fixed interest rate of 10% and that all payments are made exactly one year apart. The real world does not work this way. The point is that it is very easy to run any of these examples and make corrections as the situation changes. Financial Wizard is a tool. It will assist you to better understand financial situations so that you can make informed decisions for loans and investments. In the example above the result for the period is shown immediately after a payment is made. We have made our 30th payment and would expect to have an IRA account valued at $328,988. What if we wanted to know the value of the IRA at the end of 30 years rather than the beginning? === Example #4 IRA Growth End of Period (Enter: .0001 for Principal, 10 for Interest Rate, 31 for Number of Periods, Y for yearly payment, -2000 for payment) All we need to do is add one additional period amount, 31 rather than 30. We would then look at the number for the period we are interested in plus 1. (31 if we are interested in 30, 16 if we are interested in 15). From the amount listed for unpaid principal we would subtract 1 payment amount. Period 31 = $363886.80 - $2000 = $361,886.80 The value of our IRA at the end of 30 years would be $361,886.91 (Note: The Future Investment Value (Equal Payments) section of the program, calculates this for you automatically.) === Example #5 Growth Investment starting with Principal (Enter: 50000 for Principal, 10 for Interest Rate, 30 for Number of Periods,Y for yearly payment, -2000 for Payment) Lets assume we have an investment with a value of $50,000. We will be adding to that investment $2000 per year for 30 years. What will the investment be worth after you make your 30th, $2000 payment. (The investment is expected to grow at 10% per year.) A complete report showing growth for all year is produced. The investment would be worth $1,201,459. The program makes the following assumptions: The principal amount is compounded for the entire period. The value for the principal is shown immediately after a payment is made for that period. In the example this means that: Period Current Interest Principal 1 5000 57000 2 5700 64700 3 6470 73170 ... For Period 1 we have $5,000 in interest. This represents 10% of $50,000. The Principal amount is shown based on $50,000 (Original Principal) + $5,000 (interest) + $2,000 (Payment) = $57,000. For Period 2 we have $57,000 + compounded interest rate of 10% = $5,700 (interest) +$2,000 (Payment) = $64,700 === Example #6 - Retirement Planning, Etc. (Enter: 1000000 for principal, 8.25 for interest rate, 20 for number of periods,"Y" for Payment is Yearly, 90000 for payment.) Lets assume that you have accumulated income producing investments worth $1 Million dollars. You have just retired and have decided that you will be taking $90,000 per year from your million dollar savings. You will be removing money from the principal so you enter $90,000 as a positive number for payment. Your savings is growing at a rate of 8.25% per year. You would like this amount to last for 20 years. The $90,000 payments are made at the end of each compounding period. Once you receive your 20th payment you would still have $647,131 remaining in principal. Taking $90,000 per year from an investment growing at 8.25% would require 32 years to exhaust the principal. (Your 32 year payment would be $31,960.22 made up of $29,525.38 principal and $2,435.84 interest payment.) The examples above cover both loans and investment opportunities. These are real life problems which we all face in handling our finances. Many different types of examples could have been shown. It is hoped that these examples have given you ideas on how to apply this program to your particular needs. *** Loan Payment Amount *** This option will calculate your payment per period on a loan. For example lets assume that you have just bought a new car and are financing $11,500 for 48 months with an interest rate of 12.5% per year. We want to know what our monthly payment will be. (Enter: 11500 for principal, 12.5 for interest, 48 for number of months) Payment for principal and Interest would be $305.67. *** Tax-Free vs Non-Tax Free Yield *** This section will allow you to compare Tax-Free vs Non-Tax Free yields. As an example lets assume that we are in the 28% Tax bracket and have been presented with two investment options. One option is a tax free investment yielding 6.67%. The second investment yields 9% but is taxable at our marginal tax rate. Which investment offers the better net yield? (Enter: 9 for Yield, 28 for Marginal Tax Bracket, Y for is Yield Taxable) The answer, 6.48% non-tax equivalent for a 9% taxable investment shows that the non-taxed investment of 6.67% is the better investment since it has a higher yield. *** Straight Line Depreciation *** IRS regulations are very specific on which methods must be used for depreciating business equipment. A business however, is free to use any number of methods for internal evaluation and other non-tax purposes. Lets assume a company purchased a $20,000 piece of equipment. After 5 years the equipment is estimated to be worth $3,000. Straight Line Depreciation would result in $3,400 being depreciated per year for 5 years. (Enter: 20000 for Asset Cost, 3000 for Salvage Value, 5 for useful life in Years.) *** Double-Declining Balance Depreciation *** This method uses an annual depreciation ration equal to double the straight line ratio. This ratio is then multiplied by the undepreciated book value for the asset. (Enter: 20000 for asset cost, 5 for Useful Life, 0 for salvage value) A table is displayed showing the depreciation over the life of the asset and remaining book value per year. *** Sum-Of-the-Years'-Digits Accelerated Depreciation *** The Sum-Of-the-Years-Digits Accelerated Depreciation assumes an asset is used more often in the earlier part of its useful life. (Enter: 200000 for Asset Cost, 0 for Salvage Value, 15 for useful life.) A table is displayed showing the depreciation over the life of the asset and remaining book value per year. *** Future Investment Value (Equal Payments) *** This section will calculate future values for equal payments at the end of a period. Future investment values for equal payments has been upgraded from earlier versions of Financial Wizard. You may now input a starting balance for your investment that is automatically added to the compounding periods while you continue to make equal payments. This value may be left as 0, which will allow Financial Wizard to calculate equal payment future values the way it did with previous version of the program. (Enter 120000 for Initial Investment, 7 for Annual Interest Rate,30 for Number of years to compound, 700 for amount added to investment per period, and M to indicate that the $700 payment per period is made monthly.) Your future investment for this situation is calculated as being $1,832,940.95 of this amount $1,460,940.95 is due to compounded growth from the investment. *** Future Value One Payment *** This option allows us to calculate the growth of an investment based on a single payment over time. Let's assume we have $50,000 which we can lock into a rate of 9.25% per year for five years. We wish to know what the value of this investment will be at the end of 5 years. (Enter: 50000 for amount, 9.25 for Interest Rate, 5 for Periods) At the end of 5 years the investment will have a value of $77,817.49. *** Number of Payment for Future Value *** Lets assume we have set a goal of saving $50,000. Once a month we will add $500 to a savings account which is paying 9.25% interest yearly. How long will it take to reach our savings goal? (Enter: 50000 for Future Value, 9.25 for Yearly interest rate, 500 for Payment, M for amount added monthly.) It will take 74.4 months to reach our goal of saving $50,000. *** Interest Rate for Future Value *** We wish to have $40,000 grow to $50,000 within 2.5 years. What interest rate will that require ? (Enter: 50000 for future Value, 40000 for Present Value, 2.5 for number of years) Required interest rate would be 9.3362% *** Time Periods for future value *** We have $40,000 which is earning 10% per year in an investment. We would like to know how long it will take before this investment will be worth $50,000. (Enter: 50000 for Future Value, 40000 for Present Value, 10 for interest Rate.) It will take 2.34 years. *** Present Investment Value (Equal Payments) *** Present value calculations allow us to consider the time value of money when comparing investment opportunities. Lets assume we were offered an investment which would pay $1050 after 1 year if we invest $1000 today. We also know we could purchase a 1 year CD from a bank yielding 7.5%, which in turn would turn your $1000 investment into $1,075 dollars after 1 year. In this simple example we can easily see that the bank CD is a better investment. To calculate the value of an investment we discount the interest rate growth component. If we know at the end of 1 year that our investment will be worth $1050 and that a discount rate of 7.5% exists, then to calculate the present value for that investment do the following: (Enter: 1050 for payment, 7.5 for Discount rate, 1 for Number of Periods). The present value for the $1050 yield investment is $976.74. Since we need to spend $1000 to get this investment, but the present value for the investment is less than $1,000, we can conclude that we have a better investment option by going with the bank CD. The last example was very obvious as to which investment is preferred. Let's say that you are promised 5 annual payments of $25,000 per year for a total of $125,000. You also know that you can get 11% return on your money with another investment (Discount rate 11%). What is the present value for this investment? (Enter: 25000 for Payment, 11 for Discount Rate, 5 for number of periods). The present value for this investment is $92,397.42. This is the highest amount of money you should consider investing to get the promised return of $25,000 per year for 5 years. We assume that the first payment will be made after one year (end of period). If the first payment is made immediately, where you do not need to wait 1 year, then its present value is $102,561.14. *** Present Investment Value (One Payment) *** You are presented with an investment opportunity which promises to pay $100,000 after 5 years if you invest $65,000 today. You can earn 10% per year with another investment. Should you go with this investment assuming both investments carry the same risk level? (Enter: 100000 for Payment, 10 for Discount Rate, 5 for Number of years) The present value for this investment is $62,092.12. You would be overpaying on this investment by nearly $3000. *** Present Investment Value (Perpetuities) *** The perpetuities calculation for present value is used to determine what amount of money is required to generate a perpetual fixed income at a fixed interest rate. (Enter: 60000 for Payment per year, 8 for discount rate) $750,000.00 would be the present value for this perpetuity. We never touch any of the principal amount of our savings on a perpetuity. Payments in "theory" will last forever. *** Stock Dividend Yield Percent *** The dividend yield of a stock is calculated by taking the total dividend a stock has paid over a year, divided by the market price for a share of the stock. Dividends represent an investment return which can be compared with other investment opportunities. They should not be the only consideration in evaluating a stock but have significant impact when investing for income. (Enter 2.00 for the dividend,This stock paid $2.00 in dividends over the last year, enter 39.30 for Price of Stock.) The dividend yield for this stock would be 5.089% *** Stock Discount Rate *** The discount rate for a stocks paying dividends can be calculated by using the formula : Discount Rate = (Dividends/Price of Stock) + Growth of Dividends. Lets assume that a company pays a $5 per year dividend on a stock selling for $50 per share. The dividend from this company has been increasing at 10% per year. The discount rate for this investment would be 20%. By rearranging the equation above we can devise a Stock value per share formula for stock investments which only consider dividend payments, discount rates, and historical dividend growth rates. *** Stock Value per Share *** Value of Shares = Dividends/(Discount Rate - Growth of Dividends) By carefully studying the stability of Dividend payments, the historical growth rate, as well as risks associated with a stock, investors can help determine the value of a stock. A stock paying $5.00 in dividends, growing at 10%, and having an assigned discount rate of 20% is worth $50.00. (Enter: 5 for Dividend, 20 for Discount Rate, 10 for growth of dividends) *** Treasury bill Earnings *** Treasury bills are sold at discount from face value. The minimum denomination is $10,000. Bills are issued in maturities of 13, 26, or 52 weeks. The face value of the bill is payable at maturity. (Enter 10000 for face value of bill, 7.5 for discount rate, 180 for number of days since issue date) The earnings of this treasury bill would be $375.00. The formula used to calculate treasury bill earnings is shown: Earnings = (Discount Rate * Face Value) * (Days till Maturity/360) NOTE: Treasury Bills use a 360 day per year calendar. *** Treasury Bill Investment Rate *** The treasury investment rate is similar to calculating an investments annualized effective yield. (Enter 10000 for face value of bill, 9500 for purchase cost, 180 for number of days till maturity) The annual investment rate would be returned as 10.672%. This value allows you to compare the T. Bill return with other investments on an annualized return rate. *** Days between two dates *** This feature uses a pop-up calendar to allow you to select dates. Use the enter key to select whichever date you are on for both starting and ending dates. Page Up, Page Down, Ctrl-Page Up, Ctrl-Page Down, Up Arrow, Down Arrow, Left & Right Arrow, Home and End Key as well as a mouse can call be used to quickly navigate through the calendar. Using the calendar for starting date select May 5, 1958 and hit enter. Next select 11-11-1990 for the ending date. Total number of days between these two dates is 11,878. *** Date Addition or subtraction *** Select your starting date using the same procedure outlined above in the Days between two dates section. When you are prompted to enter days to add or subtract enter a positive or negative number of days. (Enter: 11-11-1990 for starting date, 180 for number of days to add.) The program will respond with a calendar showing 05-10-1991 as the highlighted date. *** Calendar *** The calendar can be controlled by using the following keys: Page Up, Page Down, Ctrl-Page Up, Ctrl-Page Down, Up Arrow, Down Arrow, Left & Right Arrow, Home and End Key as well as a mouse. The use of these keys becomes obvious when you test them while in the calendar or in one of the programs used by Financial Wizard that use calendar functions. *** Calculator *** This is a standard 4 function calculator. Hit (H) key for help. The calculator supports 10 memory save and restore options. Values in the calculator can automatically be posted to Financial Wizard input fields by using the ALT-F (Automatic Feed Option). In some instances the automatic feed will not work if the calculator determines that it can not accurately represent the number to copy to your input field. This should only occur if too many decimal places are involved in a calculation. Another feature of the calculator is the ability to reposition itself on your screen by holding down the Ctrl key and either the Left or right arrow key. (CTRL-Left or CTRL-Right). Using the memory store and recall feature of the calculator, you may be able to save time by not needing to rekey the same number in different section of Financial Wizard. *** Notepad *** The notepad allows you to keep notes on the program outputs, etc. It is a freeform text editor and supports automatic word wrap. Up to 50 lines of text may be entered in the Notepad. All entered information is always available during the Financial Wizard session. Page-Up, Page- Down, Home, end, up arrow, Down Arrow Key, etc. are all supported within the Notepad. CTRL-Y will automatically erase the entire line that you are on within the Notepad. **** Financial Wizard Released as SHAREWARE **** Shareware distribution gives users a chance to try software before buying it. If you try a Shareware program and continue using it, you are expected to register. Individual programs differ on details -- some request registration while others require it, some specify a maximum trial period. With registration, you get anything from the simple right to continue using the software to an updated program with printed manual. Copyright laws apply to both Shareware and commercial software, and the copyright holder retains all rights, with a few specific exceptions as stated below. Shareware authors are accomplished programmers, just like commercial authors, and the programs are of comparable quality. (In both cases, there are good programs and bad ones!) The main difference is in the method of distribution. The author specifically grants the right to copy and distribute the software, either to all and sundry or to a specific group. For example, some authors require written permission before a commercial disk vendor may copy their Shareware. Shareware is a distribution method, not a type of software. You should find software that suits your needs and pocketbook, whether it's commercial or Shareware. The Shareware system makes fitting your needs easier, because you can try before you buy. And because the overhead is low, prices are low also. Shareware has the ultimate money-back guarantee -- if you don't use the product, you don't pay for it. DISCLAIMER - AGREEMENT Users of Financial Wizard must accept this disclaimer of warranty: "Financial Wizard is supplied as is. The author disclaims all warranties, expressed or implied, including, without limitation,the warranties of merchantability and of fitness for any purpose.The author assumes no liability for damages, direct or consequential, which may result from the use of Financical Wizard." Financial Wizard is a "shareware program" and is provided at no charge to the user for evaluation. Feel free to share it with your friends, but please do not give it away altered or as part of another system. The essence of "user-supported" software is to provide personal computer users with quality software without high prices, and yet to provide incentive for programmers to continue to develop new products. If you find this program useful and find that you are using Financial Wizard and continue to use Financial Wizard after a reasonable trial period, you must make a registration payment of $25 U.S. Funds plus $3 shipping and handling to SilvaSoft. The $3 S&H fee covers your free upgrade to version 6.0 of Financial Wizard which will be sent to you when available. The $25 registration fee will license one copy for use on any one computer at any one time. You must treat this software just like a book. An example is that this software may be used by any number of people and may be freely moved from one computer location to another, so long as there is no possibility of it being used at one location while it's being used at another. Just as a book cannot be read by two different persons at the same time. Commercial users of Financial Wizard must register and pay for their copies of Financial Wizard within 30 days of first use or their license is withdrawn. Site-License arrangements may be made by contacting SilvaSoft. Anyone distributing Financial Wizard for any kind of remuneration must first contact SilvaSoft at the address below for authorization. This authorization will be automatically granted to distributors recognized by the (ASP) as adhering to its guidelines for shareware distributors, and such distributors may begin offering Financial Wizard immediately (However, SilvaSoft must still be advised so that the distributor can be kept up-to-date with the latest version of Financial Wizard). You are encouraged to pass a copy of Financial Wizard along to your friends for evaluation. Please encourage them to register their copy if they find that they can use it. All registered users will receive a free copy of the latest major upgrade of Financial Wizard, scheduled to be released as version 6.0 when available. *** A.S.P. Ombudsman Statement *** This program is produced by a member of the Association of Shareware Professionals (ASP). ASP wants to make sure that the shareware principle works for you. If you are unable to resolve a shareware- related problem with an ASP member by contacting the member directly, ASP may be able to help. The ASP Ombudsman can help you resolve a dispute or problem with an ASP member, but does not provide technical support for members' products. Please write to the ASP Ombudsman at 545 Grover Road, Muskegon, MI 49442 or send a CompuServe message via CompuServe Mail to ASP Ombudsman 70007,3536 or FAX 616-788-2765. Manuel A. Silva SILVASOFT SOFTWARE, INC. P.O. BOX 3401 Kingsport, TN. 37664 (615) 247-7551