...head: UNDERSTANDING THE CONCEPTS Understanding the Concepts Freddie Bailey FIN 100 Professor John Underwood May 27, 2012 Identify the components of a stock’s realized return. A realized return is the amount of actual gain that is made on the value of a portfolio over a specific evaluation period. The components of a stock are realized return is dividends, distributions, and share price appreciation. Dividends play a very important role in stock realized dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. High growth companies will not likely offer dividends, because all of their profits are reinvested to help sustain higher than average growth. Distribution in realized stock is either money a mutual fund pays its shareholder from the dividends or interest it earns or from capital gains, it realizes on the sale of securities in its portfolio. The term distribution is also used to describe certain actions a corporation takes. Share price appreciates is when a share increases in value, it appreciates (Anderson, 2001). Contrast systematic and unsystematic risk. Systematic risk is also known as the non-diversifiable risk. There is a relevant portion of an assist’s risk attributable to market factors that have an effect on all firms such as war, inflation, international incidents, and political events. Unsystematic risk also known as diversifiable risk represents...
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...100 index. The fund offers investors a convenient diversification at a low price. Would you be interested in investing in the fund (or somewhere else)? » What if it was TESCO that was considering HSBC FTSE 100 as an investment vehicle? □ In 2004, Sergey Brin and Larry Page, the founders of Google Inc., were talking to investment bankers from Morgan Stanley. They hope to finance a number of potential opportunities through IPO (initial public offering). One of the most important concerns is of course what the offering price should be. Part 1 Project Valuation Dr. Kirak Kim MSc Corporate Finance EFiMM0017 Project Valuation Investment decision Revisit: Valuing unlevered cash flows Revisit: Uncertainty and the notion of risk Weighted average cost of capital Adjusted present value Two Main Decisions in Corporate Finance What is the objective of the firm (corporation)? max{ Shareholder Value } i.e., owners’ wealth “How should the firm evaluate its investment alternatives?” Investment Decisions “How should the firm (optimally) finance its investment projects?” Financing Decisions Investment-side (capital budgeting) was where you left off in Finance &...
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...Return, Risk and The Security Market Line - An Introduction to Risk and Return Whether it is investing, driving or just walking down the street, everyone exposes themselves to risk. Your personality and lifestyle play a big role in how much risk you are comfortably able to take on. If you invest in stocks and have trouble sleeping at night, you are probably taking on too much risk. (For more insight, see A Guide to Portfolio Construction.) Risk is defined as the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Those of us who work hard for every penny we earn have a hard time parting with money. Therefore, people with less disposable income tend to be, by necessity, more risk averse. On the other end of the spectrum, day traders feel that if they aren't making dozens of trades a day, there is a problem. These people are risk lovers. When investing in stocks, bonds or any other investment instrument, there is a lot more risk than you'd think. In this section, we'll take a look at the different kind of risks that often threaten investors' returns, ways of measuring and calculating risk, and methods for managing risk. Expected Return, Variance and Standard Deviation of a Portfolio Expected return is calculated as the weighted average of the likely profits of the assets in the portfolio, weighted by the likely profits of each asset class. Expected return is calculated...
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...FINANCIAL MANAGEMENT ASSIGNMENT (S1309012890) Open University Malaysia Semester 2, Sept 2013 BMFM 5103 – Financial Management Question 1 If the goal of a firm is to maximize the shareholder wealth does it mean profit is not important at all? Explain your answer. (5 marks) Maximizing the shareholder’s wealth is long term process. Shareholder wealth is maximized by maximizing the difference between the market value of the firm’s stock and the amount of equity capital that was supplied by shareholders (Brigham & Ehrhardt: 2011). In order to maximize the value of the firm the managers should make all decisions to increase the total long run market value of the firm. Therefore the managers will invest in projects that would not only maximize profit and control cost but also add value to the company through processes that reflects the prices of the stock; as maximizing share price will maximize owner wealth. On the other hand, profit maximization refers to how much dollar profit the company makes. It is a short term approach which can fulfill objective of earning profit but may not help in creating wealth. Hence, financial management emphasizes on wealth maximization rather than profit maximization. As profit maximization is a short term objective of the firm which does not achieve the objectives of the shareholders; wealth maximization is better than profit maximization. However, it does not mean that profit maximization...
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...Instructor Guide CORPORATE FINANCE COURSE NUMBER: MBA591 [pic] Jones International University®, Ltd. 1.800.811.JONES (5663) http://www.jonesinternational.edu ©2008 Jones International University®, Ltd. All rights reserved. 9697 East Mineral Avenue, Englewood, Colorado 80112, USA This workbook and all accompanying audio-visual material, manuals and software (collectively, the "Materials") are copyrighted with all rights reserved. Under the copyright laws, none of the Materials may be copied in whole or in part without prior written consent of Jones International University®, Ltd. (JIU™) You may permanently transfer all of your rights in the Materials, provided that you retain no copies, and provided that you transfer all of the Materials (including all component parts, media, documentation and any prior versions and upgrades). You may not copy or allow any copies of the Materials to be made for others, whether or not you charge anyone else for the copies. Limitation of Liability. JIU™ PROVIDES ALL OF THE MATERIALS “AS IS” WITHOUT WARRANTY OF ANY KIND. EACH OF JIU AND ALL ITS DEVELOPERS, TEACHING FACULTY, DIRECTORS, OFFICERS, EMPLOYEES OR AFFILIATES DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL JIU OR ITS DEVELOPERS, TEACHING...
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...and a net income which had a major increase from 32 million euros made in 2011 to 591 million euros en 2012, following (Henkel AG & Co. KGaA, 2012). Fortunately, with a constant increase that the company have been having from its current assets, potential investor might be tempted to follow from close the progress of Henkel. This essay is also gives Henkel AG a much closer look of some of the financial values of the company in order to explain its progress to help having a better perspective of how are the performance management being a support for its evolution to incentive even more current and potential investors. Table of content Introduction 4 Cost of Equity 5 Market Beta 7 Cost of Debt 14 Weighted Average Cost of Capital (WACC) 17 Conclusion 18 References 19 Appendix 21 Introduction Due to the current economic status quo of business markets worldwide, many companies have lost their “feet”, in other worlds, the so assured stability they thought having, consequently, suffered a significantly decrease of demand and also a certain pressure from their shareholders regarding to the measures to be taken from the company to restore its reliability towards the market. However, there are financial and accounting procedures taken by current and...
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...and the related learning objectives. The learning objectives have been designed to ensure that the competencies are met. In addition, information is provided on the proportion of each question type presented in the examination (that is, multiple choice, quantitative problems, and so on). Use Students should use the examination blueprint to prepare for the course examination. The blueprint may not include all the topics listed in the course outline; however, students are still responsible for acquiring a broad-based knowledge of all topics not listed in the blueprint since these topics will be tested in assignment and review questions. The topics not listed in the blueprint will also provide students with a greater depth of understanding of finance concepts. Examination Objectives The objectives of this 3-hour, comprehensive examination are to test CGA students on the prerequisite knowledge required for the completion of Accounting Business Case [BC1] and advancement into Financial Accounting Consolidations and Advanced Issues [FA4], Accounting Theory and Contemporary Issues [ATI], and Advanced Corporate Finance [FN2], and to ensure that students have the broad-based knowledge in finance needed to function properly in upper-level education and certification courses. Examination Guidelines for Questions i) Question Type The following are guidelines on the type of questions and their approximate weightings: Percentage Weighting Question Item...
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...Office: 2453 Steinberg Hall-Dietrich Hall Email: julesv@wharton.upenn.edu Office hours: By Appointment Course Website: Available on Canvas COURSE DESCRIPTION This course is an in-depth introduction to finance with an emphasis on applications that are vital for corporate managers. We will discuss most of the major financial decisions made by corporate managers both within the firm and in their interactions with investors. Essential in most of these decisions is the process of valuation, which will be emphasized throughout the course. Topics include criteria for making investment decisions, valuation of financial assets and liabilities, relationships between risk and return, capital structure choice, payout policy, the effective use and valuation of derivative securities (futures, options), and risk management. 1 COURSE MATERIALS Textbook The textbook for the course is: Corporate Finance (plus MyFinanceLab), Jonathan Berk and Peter DeMarzo, 3rd ed., Pearson - Prentice Hall, 2014. (SBN-10: 0-13-342415-4; ISBN-13: 978-0-13342415-7) There are several options for accessing the book and MyFinanceLab. You can purchase the book with MyFinanceLab. You can purchase the e-book and MyFinanceLab. You can purchase or rent the book, and purchase MyFinanceLab separately. Please see the last page of this syllabus for details for details on registering for MyFinanceLab. Other required readings are listed in the syllabus and made available through Canvas or Study.net...
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...ONE INTRODUCTION 1.1 Introduction Whether a business concern is big or small, it needs finance to fulfill its business activities. Finance may be defined as the art and science of managing money. According to Oxford dictionary, the word ‗finance‘ connotes ‗management of money‘. Webster‘s Ninth New Collegiate Dictionary defines finance as ―the Science on study of the management of funds‘ and the management of funds as the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities. Therefore, Finance is defined as the procurement of funds and their effective utilization in business concerns. The concept of finance includes capital, funds, money, and amount. But each word has a unique meaning. Studying and understanding the concept of finance become has an important part of the business concern. 1.2 Corporate Finance Financial Management or corporate finance, deals with procurement of funds and their effective utilization in the business entities. Financial management is the broadest of the three areas of finance and is important in all types of businesses including banks, financial institutions, industrial concerns, and retail firms, governmental institutions such as schools, hospitals and even local governmental departments. Corporate finance is concerned with budgeting, financial forecasting, cash management, credit administration, and investment analysis and fund procurement of the business concern...
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...Dividend Analysis 16 3.2.1 David Jones Limited (DJS) 16 3.2.2 JB HI-FI Limited (JBH) 17 3.2.3 Comparison 17 3.3 Alternatives of Paying Dividends 18 3.4 Company’s Characteristics 19 3.5 Optimal Dividend Policy 19 4. Valuation 20 4.1 Methodology of valuation 20 4.2 Operating revenue estimation and Future free cash-flow 20 4.2.1 Performance of HVN: 20 4.2.2 Future prospects: 22 4.2.3 Operating Revenue Forecasting: 22 4.2.4 Free cash flow: 25 4.3 Weighted Average Cost of Capital (WACC) 25 4.3.1 Value of Debt and cost of debt: 25 4.3.2 Value of equity and cost of equity: 26 4.3.3 Weighted Average Cost of Capital (WACC): 27 4.4 Value of Harvey Norman Holding Ltd and estimated share price: 28 4.5 Sensitivity Analysis: 28 4.5.1 Operating revenue and share price: 29 4.5.2 Share price as a function of terminal FCF growth and WACC: 30 4.6 Share price assessment and investment decision: 30 Conclusion 32...
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...9-295-100 Rev. August 7, 1997 Cross-Border Valuation Cross-border investment has assumed a prominent place among the key decisions facing investors and corporate managers. In today’s increasingly global marketplace, many investment projects, corporate acquisitions and mergers have important international components. The importance of cross-border valuation methods have been underscored by trends toward the relaxation of capital controls, European economic integration, and, since the early 1990s, the opening and growth of Eastern European, Russian, Asian and Latin American markets. Cross-border acquisitions have been a particularly prevalent form of investment since 1980. American corporations, for example, increased their acquisitions of foreign targets by 160% between 1980 and 1990. Acquisitions of American targets by foreign companies rose about 50% during the same period. Some transactions, such as Matsushita Electric's $6.9 billion acquisition of MCA, Inc. in 1991, have been quite large. The majority, however, have been well under $100 million in size, suggesting that these transactions are not just the domain of giant multinationals. Evaluating crossborder opportunities is a critical consideration of executives and investors from around the world. The objective of this note is to review basic methods of valuing cross-border investments and the main issues affecting such valuations. It is intended to be a source of guidance, not a comprehensive review of...
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...Contents Part A Concept Questions ................................................................................................. A-1 Part B Chapter 2: Chapter 3: Chapter 4: Appendix 4A: Chapter 5: Appendix 5A: Chapter 6: Chapter 7: Chapter 8: Chapter 9: Chapter 10: Chapter 11: Chapter 12: Chapter 13: Chapter 14: Chapter 15: Chapter 16: Appendix 16B: Chapter 17: Chapter 18: Chapter 19: Chapter 20: Chapter 21: Chapter 22: Chapter 23: Chapter 24: Chapter 25: Chapter 26: Chapter 27: Chapter 28: Chapter 29: Chapter 30: Chapter 31: Answers to End-of-Chapter Problems Accounting Statements and Cash Flow ................................................................... Financial Planning and Growth ............................................................................... Net Present Value .................................................................................................... Net Present Value: First Principles of Finance ........................................................ How to Value Bonds and Stocks ............................................................................. The Term Structure of Interest Rates, Spot Rates, and Yields to Maturity ............. Some Alternative Investment Rules......................................................................... Net Present Value and Capital Budgeting ............................................................... Risk Analysis, Real Options, and Capital...
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...managers Unit 2 Investment appraisal methods Unit 3 Risks and Return Unit 4 Asset Pricing Models, CAPM & APT Unit 5 Capital Market Efficiency and Stock Market Anomalies Unit 6 Cost of Capital, Shareholder’s wealth, Gearing & Leasing Unit 7 The dividend decision Unit 8 Corporate Restructuring 1 Aim of the Module To provide learners with knowledge of the principles and practice of the financing decisions of enterprises. Learners will learn about the decisions which firms make about financing their investments in productive capital. Teaching and learning strategy The teaching and learning strategy is designed to develop in students an ability to understand the mechanisms of financial markets and the issues pertaining to investment decision in those markets. Students should be able to understand and apply the time value concepts with regards to investment decision. They should also be able to evaluate the risks and returns of financial instruments. Assessment Strategy Unit(s) of Assessment Assignment WrittenExamination Weighting Towards Module Mark (%) 30 70 GUIDELINES FOR SELFSTUDY This manual aims at fulfilling the preciously identified learning objectives. Despite the fact that this manual is self-contained, you are expected to do some additional research in books and academic articles to deepen your understanding of quantitative techniques and research methodology. Manual: ...
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...1.2 | The Corporate Firm | 4 | | The Sole Proprietorship | 4 | | The Partnership | 4 | | The Corporation | 5 | | A Corporation by Another Name . . . | 7 | 1.3 | The Importance of Cash Flows | 7 | 1.4 | The Goal of Financial Management | 10 | | Possible Goals | 11 | | The Goal of Financial Management | 11 | | A More General Goal | 12 | 1.5 | The Agency Problem and Control of the Corporation | 13 | | Agency Relationships | 13 | | Management Goals | 14 | | Do Managers Act in the Stockholders' Interests? | 14 | | Stakeholders | 15 | 1.6 | Regulation | 16 | | The Securities Act of 1933 and the Securities Exchange Act of 1934 | 16 | | Sarbanes-Oxley | 17 | | Summary and Conclusions | 18 | | Concept Questions | 18 | | S&P Problems | 19 | 2 Financial Statements and Cash Flow 20 2.1 | The Balance Sheet | 20 | | Liquidity | 21 | | Debt versus Equity | 22 | | Value versus Cost | 22 | 2.2 | The Income Statement | 23 | | Generally Accepted Accounting Principles | 24 | | Noncash Items | 25 | | Time and Costs | 25 | 2.3 | Taxes | 26 | | Corporate Tax Rates | 26 | | Average versus Marginal Tax Rates | 26 | 2.4 | Net Working Capital | 28 | 2.5 | Financial Cash Flow | 28 | 2.6 | The Accounting Statement of Cash Flows | 32 | | Cash Flow from Operating Activities | 32 | | Cash Flow from Investing Activities | 32 | | Cash Flow from Financing Activities | 33 |...
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...FGB 380 Common Final Exam The final exam consists of 60 multiple choice and/or true false questions worth 2.5 points each. The 60 assessment items may include, but are not limited to the following: 1. The goal of the financial manager Chapter 1 Maximize stockholder’s wealth 2. Legal forms of business organization, with specific emphasis on the advantages/disadvantages of corporations Sole Proprietorship: a business owned by one individual (greatest in number of the forms) Advantages: Easiest to start, least regulated, single owner gets all profits, taxed as personal income Disadvantages: Limited to life of owner, equity capital limited to owner’s personal wealth, unlimited liability, difficult to sell ownership interest Partnership: Similar to sole proprietorship, except the business has more than one owner. Advantages: more capital available and relatively easy to start, taxation is simple (each owner reports their percentage of income Disadvantages: unlimited liability extends to both partners (joint and severally liable), difficult to raise capital, difficult to transfer ownership NOTE: A limited partnership limits the partners to their investment, but one partner has to be unlimitedly liable Corporation: a separate legal entity that exists apart from its owners (shareholders or stockholders). Most important in total sales, assets, profits, and contributions to national income. Advantages: limited...
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