Week 1 Notes- September 8, 2015
Week 1 Notes- September 8, 2015 BA 7020-002
Popular in Corporate Financial Management
Popular in Business
B A 2020
verified elite notetaker
This 4 page Class Notes was uploaded by Christina Hamzey on Friday September 11, 2015. The Class Notes belongs to BA 7020-002 at Wayne State University taught by Ali Hammoud in Summer 2015. Since its upload, it has received 80 views. For similar materials see Corporate Financial Management in Business at Wayne State University.
Reviews for Week 1 Notes- September 8, 2015
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 09/11/15
September 8 2015 Week 1 notes Corporate Financial Management Chapter 1 amp 2 CF addresses 3 questions Answers to those s 1 We are interested in longterm more than 1 year Example xed assets equipment buildings In other words investment in xed assets Why To grow business to receive return Investment in xed assets is also known as a Debt or eiuiti 3 100 equity or debt Or 50 of equity and 50 of debt How to decide Go with the cheapest form the one that will cost the lowest How are we going to pay for this investment ownership issuing stocks Also known as a What is the main cost of debt Interest What is the main cost of equity It is not a direct cost Example negative stock reaction affected by stocks outstanding Another factor of using debt taxes amp expenses lower taxes Managing daytoday activities current assets amp current liabilities Difference between them is known as net working capital It is good to have a NWC How fast you turn something into cash without a signi cant loss in its value is known as liquidity Forms of business organizations 1 Sole Proprietorship 1 owner H Factors 0 Pay taxes once 0 Least expensive to start 0 100 pro t your own boss 0 Least regulated H Factors Unlimited liability 0 Limited capital resources etc 0 Limited life to life of owner Not easy to transfer skills and knowhow s 2 Partnership General all partners are general partners and have unlimited liability 0 Limited made both of General amp Limited Limited partners have limited liability General partners have unlimited liability What is the difference between General and Limited partners General partners help run the corporation 3 Corporation H Factors Limited liability Easier to raise capital Unlimited life H Factors Double taxation Both amp Separation of ownership amp management 0 Indirect power of management You can benefit from expertise Diversification without being directly involved Con icts of interest stock holder goal is to maximize price per share while management goal is their salary over the expense of stock holder What type of companies pays less in dividends and retains more in earnings Apple Why That money could go into RampD growth opportunities High growth rate companies usually do not pay dividends amp vice versa Value c pay high dividends low growth rate Example Chevron Growth c example Net ix Main ioal of nancial manaiement The Agency Problem Management agent Stockholdersowners principal How do you know con icts of interest 0 Managerial compensation incentives Corporate control Other stakeholders big institutional investments government customers Regulation Goal to protect stockholders from managers Chapter 2 Balance Sheet Assets amp liabilities are listed at historical cost Key note amp example end of 2011 cash ow amp equivalent is 107 and that s beginning of 2012 107 cash ow amp equivalent What is a noncash expense Depreciation Taxes Marginal for every additional dollar earned Net Working Capital current assets current liabilities To compare 2 NWCs Example 1St year NWC 2nd year NWC 707455 252 761486 275 275 year 2012 252 year 2011 23 M End is higher than beginning change which is cash out ow Why Because you ve added to your inventory Reduction in NWC cash in ow Financial Cash Flow Cash generated must be the same as cash paid out CF Assets CF B CF S OCF is Operating Cash Flow How to get it Compute EBIT Depreciation Taxes This info is found in Income Statement NCS is Net Capital Spending Expenditures How to get it Compute ending net xed assets beginning net xed assets depreciation Change in NWC How to get it Compute Current assets current liabilities CF to creditors interest new borrowing interest or ELTD BLTD CF to stockholders Dividends new equity raised