Chapter 4 and 5 notes
Chapter 4 and 5 notes BUS 413 Corporate Finance
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This 3 page Class Notes was uploaded by Samantha Bressler on Friday October 7, 2016. The Class Notes belongs to BUS 413 Corporate Finance at College of the Ozarks taught by Mr. Kevin Riley in Fall 2016. Since its upload, it has received 5 views. For similar materials see Corporate Finance in Business Administration at College of the Ozarks.
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Date Created: 10/07/16
2 things you can do with net income: retain it divide it among shareholders IPO: initial public offerings: the process whereby a private corporation issues new common stock to the general public thus becoming a publicly traded corporation Market share is important: we must understand the base year to know the percentage is good. Stock option: to provide incentive for them to exercise buying stock; however, they cannot use it till a certain time. Figure 1.1 on pg 8 Cause related marketing: Marketing towards people's feelings Executives at big financial firms received big bonuses if they could report big profits IPO: when the company finally feels like they have enough equity to go public. Underwriter: goes in and tells a company how much they are worth and how to create IPO. Finance is an applied area of economic that relics on accounting profit. Problem 1 on H3: 20,000*1.08*1.08= 23,328 20,000*1.06= 21,200 2,128/21,200 Term Structure 10.04% Problem 2 on H3: All municipal bonds are tax free rate/ 1 tax rate = 7/ (1.28)= 7/ .72= 9.7% Problem 3 on H3: 1,000 1,000 *1.05 *.03 1,050 30 1,020 in purchasing power National bank are examined by controller or currency Commercial bank are examined by state bank authority state insured charter are examined by FDIC Business Plan: Marketing, management, financial sections executive summary: do last management: marketing: united states census bureau, nielsen, my best segments financial: bizstats.com EBIT is important because it tells the chief officer how much needs to be paid. taxable income: 21,000 020,000 10% 20,000*.1=2,000 20,00140,000 15% 1,000*.15=150 21,000 2,150 = 10.24% average effective rate 15% marginal last $ taxed at taxable income: 21,000 <2,000> tax reductible IRA (individual retreatment account) 19,000 marginal rate 10% 19,000/19,000 = 10% average rate 2,150 1,900 250 was saved on taxes Net income/sales = net percentage Review questions for chapter 4 1. two ways to finance the assets business debt or equity 2. 1income, 2 statement of cashflows, 3 balance sheet (picture) 3. depreciation is an expense and always add back on cash flow 4. retained earning is the sum of all earning 6. accumulated depreciation is a contra asset 7. operation, investments, financing Problem 1 and 2 good for review balance sheet in good form Chapter 5: par value: 1 Stock price: 20 Net Income: 1,000,000 Outshares: 500,000 Auth. Shares: 700,000 Pe ratio= 20/2 = 10 Market capitalization: to determine stock price x outstanding shares ex: 20 x 500,000 = 10,000,000 return on cost: titanic wedding banquet sales 1,750,000,000 23,600,000 cofgs 200,000,000 1,000,000 return on cost 8.75 23.60 total revenue/ total cost = return on cost know where everything goes on the balance sheet, income statement, and statement of cash flow. know how to calculate EPS firm a firm b total assets 1,000 1,000 debt (10% rate) 0 600 equity 1,000 400 total 1,000 1,000 operating income 140 140 interest exp 0 60 net profit 140 80 return on equity= net income/common equity 140/1,000= 14% or 80/400= 20% operating income 60 60 interest exp 0 60 net profit 60 0 return on equity= 60/1000= 6% or 0/400= 0% In average collection period, divide average daily credit sales by 360 instead of 365
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