a. Why is corporate finance important to all managers? It is important that a manager under the basic components of running a business. Understanding things such as the return of investment and interest over time should also be concern to the manager as well. Especially since factors as such determine the company’s ability to continue to stay in business and be successful. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. There are
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operating costs. The cash flow statement shows where a company receives its cash, and how it spends it. Understand that the cash flow of a company changes rapidly as the business ebbs and flows, and the cash flow statement reflects the change from one statement to another. Revenue the company receives from customers, revenue from investment sales and money that comes into the business from loans are all sources of cash inflow reflected on the cash flow statement. Outflows of cash can include cost of
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period that they plan to invest in this adventure. This will be performed by figuring out the company net present value and cash flow to determine if a project should be accepted within a three year payback period. The formula that was used to find the payback period was Payback Period = Investment (Total Cost of the Project) / Annual Cash Inflow. The formula used to calculate the net present value is as followed (1+r) ^t. Please click link to view excel spreadsheet
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a particular entity as a result of past transactions or events. Assets has three characteristics: it embodies a probable future benefit that involves a capacity or in combination with other assets, to contribute directly or indirectly to future net cash inflows, a particular entity can obtain the benefit and control others’ access to it and the transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred. Future economic benefit is the essence of
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We use this principle to project cash flows in the future. 2. Legal Entity: The business is an entity separate from owners; even if it’s a small, one person business running out of home. Therefore the business accounts are taken separate from the owners. 3. Conservatism: Be cautious and conservative while accounting. Recognize income only when it’s definite. 4. Accrual Concept: Income and expense are recognized/recorded when a transaction occurs- not when cash changes hands. Income and expense
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Investment Analysis and Lockheed Tristar Rainbow Products Part A Cash Flow -35000 5000 Payback period IRR NPV Decision 5000 5000 5000 5000 5000 11.49% (Rs.945.68) NO WACC 12% WACC 12% -35000 4500 Payback period IRR NPV Decision Payback period IRR NPV Decision 5000 7 years Part B Cash Flow Initial Yr 1 to infinity Part C Cash Flow -35000 5000 7.78 years 12.86 % 2500 Yes 4000 4160 4326.4 4499.456 4679.434
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FINS1613 Business Finance Semester 2 – 2009 Version 1.0.0 12th October 2009 Contents Page 3 Page 7 Page 10 Page 14 Page 18 Page 23 Page 26 Page 29 Page 32 Page 38 Page 42 Basic Concepts Introduction to Financial Mathematics The Valuation of a Firm’s Securities Capital Budgeting Capital Budgeting Applications – Part 1 Capital Budgeting Applications – Part 2 Risk and Return The Capital Asset Pricing Model Cost of Capital and Raising Capital Capital Structure Dividend Policy Note: This course
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------------------------------------------------- Chapter 2 – ESTIMATING DISCOUNT RATES (starting at page 28) Cost of Equity * Can be measured with: * CAPM: risk measured relative to a single market factor * Arbitrage pricing model: cost of equity is determined by the sensitivity to multiple unspecified economic factors * Multiple factor model: sensitivity to macroeconomic variables is used to measure risk i. Estimate Risk-Free Rate ii. Estimate Risk Premium
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investment’s cash flows * Concept of present value: value of investment = PV(CF°, CF1, CF2…) Important characteristics of cash flows: * Time: for the same amount of money, now is preferred to tomorrow * Uncertainty: risk and return (1 for sure is preferred to half a chance to get 2) Opportunity cost of capital: Definition: opportunity cost of capital is the expected rate of return offered by equivalent investments in financial markets Net present value (investment rule) Definition:
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public offering as the business grows it can issue additional stock to the public. an agency problem is when the management of the business acts in their own self interest and not the interest of the shareholders. corporate governance is the set of rules that controls the company's behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community d the primary objective of manager is maximizing shareholder's wealth which translates to maximizing
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