...Ch. 14. An overview of Corporate Finance. 14.1 Cash for investments is generated mostly (USA: 80%) internally as depreciation and retained earnings. Still, companies have a gap between cash they need and cash they generate internally. This gap is financial deficit. So companies have to either sell new equity or borrow.This causes two different kinds of problems: 1) The plow back ratio? => Dividend policy 2) The proportions of debt and issue of equity? => Debt policy. • Net stock issue is negative = Company repurchases more stocks than issues them. Reasons for internally generated funds: a) avoid cost of issuing securities b) investors don’t get the message from lower future profits and higher risk. Recent years firms have issued more debt than equity. Still, there are many ways to calculate the Debt ratio of company: 1) Debt / total assets = ( Short + long term debt ) / Total assets, or 2) Proportion of debt in long term financing) = Long term liabilities Long term liabilities + stockholders’ equity The Debt Ratios has risen since 1950 because of the book value of the corporate assets falls as behind the actual value of those assets. This is caused the inflation. And the new tools for risk management have...
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...CHAPTER 2 Present Values, The Objectives of the Firm, and Corporate Governance Answers to Practice Questions 1. The face value of the treasury security is $1,000. If this security earns 5%, then in one year we will receive $1,050. Thus: NPV = C0 + [C1/(1 + r)] = −$1000 + ($1050/1.05) = 0 This is not a surprising result because 5 percent is the opportunity cost of capital, i.e., 5 percent is the return available in the capital market. If any investment earns a rate of return equal to the opportunity cost of capital, the NPV of that investment is zero. NPV = −$1,300,000 + ($1,500,000/1.10) = +$63,636 Since the NPV is positive, you would construct the motel. Alternatively, we can compute r as follows: r = ($1,500,000/$1,300,000) – 1 = 0.1539 = 15.39% Since the rate of return is greater than the cost of capital, you would construct the motel. 3. Investment (1) NPV Return 2. − 10,000 + 18,000 = $5,000 1.20 18,000 − 10,000 = 0.80 = 80.0% 10,000 9,000 − 5,000 = 0.80 = 80.0% 5,000 5,700 − 5,000 = 0.14 = 14.0% 5,000 4,000 − 2,000 = 1.00 = 100.0% 2,000 (2) − 5,000 + 9,000 = $2,500 1.20 5,700 = −$250 1.20 4,000 = $1,333.33 1.20 (3) − 5,000 + (4) − 2,000 + a. b. Investment 1, because it has the highest NPV. Investment 1, because it maximizes shareholders’ wealth. 1 4. a. b. NPV = (−$50,000 + $20,000) + ($38,000/1.05) = $6,190.48 NPV = (−$50,000 + $20,000) + ($38,000/1.10) = $4,545.45 In Part (a), the NPV is higher than the NPV of...
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...Principles of Corporate Finance How To Calculate Present Values Richard A. Brealey Stewart C. Myers Franklin Allen Slides by Matthew Will & A. Gledson de Carvalho McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 3- 2 Topics Covered Valuing Long-Lived Assets PV Calculation Short Cuts Compound Interest Nominal and Real Rates of Interest (inflation) Examples McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 3- 3 Present Value Present Value Value today of a future cash flow. Discount Rate Interest rate used to compute present values of future cash flows. Discount Factor Present value of a $1 future payment. McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 3- 4 Present Value Present Value = PV PV = C1 (1 + r ) 1 = × C1 1+ r PV = discount factor × C 1 McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 3- 5 Valuing an Office Building Step 1: Forecast cash flows Cost of building = C0 = 350 Sale price in Year 1 = C1 = 400 Step 2: Estimate opportunity cost of capital If equally risky investments offer a return of 7%, then Cost of capital = r = 7% McGraw Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved 3- 6 Valuing an Office Building Step 3: Discount future cash flows PV = (1C1 ) = (1400 ) = 374 +r +...
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...Accredited Tertiary Courses Listing 2012 Accredited Tertiary Courses Listing 2012 – as at 26 September 2012 1 2012 Accredited Undergraduate Courses AUSTRALIAN CAPITAL TERRITORY The Australian National University University of Canberra NEW SOUTH WALES Australian Catholic University Australian Institute of Higher Education Avondale College Charles Sturt University Kings Own Institute Macquarie University Southern Cross University Top Education Institute The University of New England The University of New South Wales The University of Newcastle The University of Sydney University of Technology, Sydney University of Western Sydney University of Wollongong Williams Business College NORTHERN TERRITORY Charles Darwin University QUEENSLAND Australian Catholic University Bond University Central Queensland University Christian Heritage College Griffith University James Cook University Queensland University of Technology The University of Queensland The University of Southern Queensland University of the Sunshine Coast SOUTH AUSTRALIA Flinders University Kaplan Business School The University of Adelaide University of South Australia Open Universities (conferred by Uni of SA) TASMANIA University of Tasmania VICTORIA Australian Catholic University Cambridge International College Carrick Higher Education Deakin University Holmes Institute Holmesglen Institute of TAFE La Trobe University Melbourne Institute of Technology Monash University Northern Melbourne Institute of TAFE RMIT...
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... Franco Modigliani Professor of Finance and Economics, Sloan School of Management, Massachusetts Institute of Technology, Consulting Editor Financial Management Adair Excel Applications for Corporate Finance First Edition Block and Hirt Foundations of Financial Management Thirteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Ninth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Edition First Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Sixth Edition Brooks FinGame Online 5.0 Bruner Case Studies in Finance: Managing for Corporate Value Creation Fifth Edition Chew The New Corporate Finance: Where Theory Meets Practice Third Edition DeMello Cases in Finance Second Edition Grinblatt (editor) Stephen A. Ross, Mentor: Influence through Generations Grinblatt and Titman Financial Markets and Corporate Strategy Second Edition Helfert Techniques of Financial Analysis: A Guide to Value Creation Eleventh Edition Higgins Analysis for Financial Management Ninth Edition Kester, Ruback, and Tufano Case Problems in Finance Twelfth Edition Ross, Westerfield, and Jaffe Corporate Finance Eighth Edition Ross, Westerfield, Jaffe, and Jordan Corporate Finance: Core Principles and Applications Second Edition Ross, Westerfield, and Jordan Essentials of Corporate Finance Sixth Edition Ross, Westerfield and Jordan Fundamentals of Corporate Finance Eighth Edition Shefrin Behavioral Corporate Finance: Decisions that Create Value First...
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...Steven W. Simmons Sr. University of Phoenix Business Structures Fin/571 – Corporate Finance Oscar Lewis August 16, 2014 Business Startup When making important business decisions, the concepts of corporate finance tend to be the best model to use. These concepts offer proven methods, which improve the financial success. Discussed below are basic corporate financial concepts, which can be applied and yield positive results. Principles of Corporate Finance When dealing with business investments most commercial entities have used corporate financing in the company. The principle of self-interested behavior is the principle which creates a financial advantage for all parties involved when the playing field is equal or all components associated with the deal are equal. As we strive to gain a deeper comprehension of business transactions through human behavior we find that each of the 12 principles carry invaluable weight to the success or failure of the company. Comparative advantage, diversification, options, risk-return tradeoff, signaling, and valuable ideas are some of the principles used in business dealings. Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business...
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...Steven W. Simmons Sr. University of Phoenix Business Structures Fin/571 – Corporate Finance Oscar Lewis August 16, 2014 Business Startup When making important business decisions, the concepts of corporate finance tend to be the best model to use. These concepts offer proven methods, which improve the financial success. Discussed below are basic corporate financial concepts, which can be applied and yield positive results. Principles of Corporate Finance When dealing with business investments most commercial entities have used corporate financing in the company. The principle of self-interested behavior is the principle which creates a financial advantage for all parties involved when the playing field is equal or all components associated with the deal are equal. As we strive to gain a deeper comprehension of business transactions through human behavior we find that each of the 12 principles carry invaluable weight to the success or failure of the company. Comparative advantage, diversification, options, risk-return tradeoff, signaling, and valuable ideas are some of the principles used in business dealings. Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business...
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...Business Structures Alan FIN/571 1/21/16 Afredo Alpeaz Business Structures Business Startup When making important business decisions, the concepts of corporate finance tend to be the best model to use. These concepts offer proven methods, which improve the financial success. Discussed below are basic corporate financial concepts, which can be applied and yield positive results. Principles of Corporate Finance When dealing with business investments most commercial entities have used corporate financing in the company. The principle of self-interested behavior is the principle which creates a financial advantage for all parties involved when the playing field is equal or all components associated with the deal are equal. As we strive to gain a deeper comprehension of business transactions through human behavior we find that each of the 12 principles carry invaluable weight to the success or failure of the company. Comparative advantage, diversification, options, risk-return tradeoff, signaling, and valuable ideas are some of the principles used in business dealings. Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business transactions. For a company to be considered profitable or successful...
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... | | | |*The same course can be transferred only as 1 course. | |First Level Modules | | |ACC1006 Accounting Information Systems |International Technology Venturing | |BSP1005 Managerial Economics |TU91.2010 Managerial Economics | |MKT1003 Principles of Marketing |23A00210 Introduction to Marketing (6 ECTS)...
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...decide whether or not to lend funds. Financial analysis Financial analysis (also referred to as financial statement analysis) refers to an assessment of the viability, stability, and profitability of an organization or project. What we hope to do in this article is show how four principles, or cornerstones, can help senior executives and board members make some of their most important decisions. The four cornerstones are disarmingly simple: 1. The core-of-value principle establishes that value creation is a function of returns on capital and growth, while highlighting some important subtleties associated with applying these concepts. 2. The conservation-of-value principle says that it doesn’t matter how you slice the financial pie with financial engineering, share repurchases, or acquisitions; only improving cash flows will create value. 3. The expectations treadmill principle explains how movements in a company’s share price reflect changes in the stock market’s expectations about performance, not just the company’s actual performance (in terms of growth and returns on invested capital). The higher those expectations, the better that company must perform just to keep up. 4. The best-owner principle states that no business has an inherent value in and of itself; it has a different value to different owners or potential owners—a...
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...impact on the success or failure of his company, so he will engage in foundational corporate finance principles that will guide his decision-making. This paper will explain several principles of foundational corporate finance, and show how they relate to the Guillermo Furniture Business Scenario. Principle of Self Interested-Behavior The principle of Self-Interested Behavior of foundational corporate finance plays a fundamental role in the Guillermo’s decision-making because he acts in his own best interest to attain the success of his company. The principle of Self-Interest Behavior states that, “All things being equal, all parties to a financial transaction will choose the course of action most financial advantageous to themselves” (Emery, 2007). Naturally, Guillermo wants his company to be a financial success, so he will base his decisions that will give him the best possible income. For instance, when Guillermo begins to realize that his profits are dropping and costs are going up, he conducts research on his competitors to understand how they are more successful than his company. His way of life has been threatened, and now he must act quickly to save his company. The fact that Guillermo does not want to merge or acquire with another company, shows that he does not want the opportunity cost of giving up family time. Principle of Two-Sided Transactions Two-Sided Transactions Principle is important to Guillermo’s business as he will conduct...
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...Practices and Ethics Paper There are many components that come with accepted accounting principles of financial reporting practices, and ethical standards in health care finance; such as Corporate compliance, ethics, or even fraud and abuse. There are four elements of financial management. “Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.” (MSG, 2012). These elements include, “Investment decisions includes investment in fixed assets (called as capital budgeting).Investment in current assets are also a part of investment decisions called as working capital decisions. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two: Dividend for shareholders- Dividend and the rate of it has to be decided. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.” (MSG, 2012). “Generally Accepted Accounting Principles (GAAP) refers to rules of accounting used to record and report the financial operations of...
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...Accounting Research Institute, Faculty of Accountancy UniversitiTeknologi MARA, Shah Alam, Malaysia Sheila Nu NuHtay Institute of Islamic Banking and Finance International Islamic University Malaysia, Gombak, Malaysia Syed Ahmed Salman PhD. Candidate and research assistant at Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur Sponsored or supported by: ARIHICoE Research Grant Abstract Since the last few decades, Islamic finance industry has developed tremendously penetrating not only the Muslim countries but surprisingly the non-Muslim countries as well. It has been acknowledged by the scholars on the need for this development to cater for the Islamic banking, Takaful and Islamic capital market industries. These three main industries are interrelated and dependent on each other in order to ensure that the whole Islamic financial system is in compliance with the Islamic principles. Among these three streams of the service industry, the Islamic capital market plays a crucial role to support the other two. Since Islamic banks and Takaful operators have to invest to provide the benefits to the investors and policy holders which are compatible with the conventional counterparts, the Islamic capital market is assumed to be the backbone for the two to survive and grow in the Islamic finance industry. Country such as Malaysia has issued the Shari’ah Governance Framework (SGF) specifically for Islamic banking sector in its most recent development...
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...an unusual or conflicting accounting principle, which has affected the chosen for profit organization and of course the analysis of its revealed monetary statements for the past two monetary years. The paper conjointly discusses the functions of each one of the departments of the organization and their strengths and of course the weaknesses. The organization that has been chosen during this paper is Coca-Cola enterprises Inc. The organization will be the highest manufacturer and the distributor of its bottled liquid refreshment. It’s involved with non-alcoholic refreshment. The financials of the organization for the past 2 years clearly show that the organization is practicing okay. Financials of the Company The net operating revenue as to the organization within the whole money year 2012 was $ 21, 807 million whereas the money year 2013 it really has dipped slightly too actually $21, 645 million. This has not affected the gross profit as to the organization that has shown a rise of $268 million. Within the whole money year 2012 the organization showed a net loss other then it bounced back and turned the loss within the whole profit within the whole money year 2013. The losses within the whole money year 2012 were because of the further indirect expenses incurred from the organization. The accounting principles that are set from the finance department as to the government needs to be followed from the organization. These principles would possibly be modified generally...
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...compliance in the organization’s financial environment. The consequences can be permanent if not for the success history of the finance ethics and compliance team. The primary focus of Microsoft finance team’s mission includes providing world class financial leadership to optimize long term shareholder value as well as be recognized in the industry as setting the utmost highest degree of leadership in using innovative processes, tools, and systems. Microsoft Finance team members uphold values in each role of the company in order for each job be in compliance with the ethical policies and guidelines that includes finance service, integrity, results, and assisting other individuals be successful through their efforts. Ethical and compliance practices are maintained through Microsoft’s Overview that includes the Finance Code of Professional Conduct, Shareholder Accountability, Corporate Policies and Guidelines, and Board of Directors. Microsoft’s Chief Executive Officer (CEO), Chief Financial Officer (CFO), Corporate Controller, and the employees of the finance organization uphold important and prominent roles in corporate governance that ensure the company’s financials are balanced, protected, and preserved. The Corporate Policies and Guidelines are said to have been over the course of Microsoft's history, the Board of Directors has developed corporate governance policies and practices to help it fulfill its responsibilities to shareholders (Microsoft, 2010). These governance...
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