...CHAPTER 1 INTRODUCTION AND OVERVIEW Learning Objectives The subject matter of economics and finance • The general role of the financial system in a modern economy • The major functions of financial markets and financial intermediaries • What saving is and its uses • How the financial system channels funds from lenders to borrowers • The role of the Federal Reserve and its regulatory and monetary policy responsibilities Lectures Notes I. Economic and financial analysis of an ever-changing system A. Economics is about how society decides what gets produced, how it gets produced and who gets what. B. Microeconomics studies about individual decision making units. Macroeconomics deals with aggregate or total behavior of all households and firms. C. Finance is about how the financial system coordinates the flow of funds from lenders to borrowers and how new funds are created by financial intermediaries in the borrowing process. D. Historically, the financial system has been highly regulated since a smooth functioning, efficient financial system is vital to a healthy economy. C. In recent years, the financial system has been changing due to new ways to raise and use money through financial intermediation, increased globalization, and deregulation. II. Finance in our daily lives A. Money is something generally acceptable and generally used to make payments. Saving is income not spent on...
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...* PV(CF) = CF/(1+r)t AKA PV = FV/(1+r)t * NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C,r) = C/r requires cash flow to begin NEXT period. If begin now, then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C,r,t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C,r,g) = C/(r-g) C is initial cash flow, r is discount rate, g is growth rate * P/E = 1/(r-g) * High P-E multiple means the firm has good growth opportunities (high g), investments have low risk (low r), or both * Computing NPV – obtain the proper CF to use in the calculation * Rule: Determine all CF which will be realized if the project is taken. Subtract from this the CF that will be realized if the project is not taken. Result represents the CF impact of the project. The present discounted value of these incremental CF is the NPV of the project * CF = EBIT – Taxes + Depreciation – Capital Expenditures (CAPX) * EBIT (Earnings Before Interest & Taxes) = Revenues – Cost – Depreciation * EBIAT = EBIT * (1-TaxRate) * Taxes = CorpTaxRate * (Revenues – Costs – TaxShield) * FinalCF = SellingPrice – Taxes * NWC = Current Assets – Current Liabilities (change in NWC must = 0) * Projects of greater risk must have a higher discount rate as investors demand more return to compensate them for added...
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...HAWAWINI – CHAP11. Managers need to make two major decisions: A – What investments to take; B – How to finance it; A company that decide to finance its projects with external funds, maybe fi nd itself in difficult situation to pay its debts (excessive borrowing). Managers will be under pressure to make decisions that may not be in the best interest of shareholders – example: sell of value –creating assets; Conversely, a firm with too little debt may pass up the opportunity to reduce its tax payments and increase its value through tax savings. The firm’s optimal capital structure is the debt ratio that maximizes the market value of the firm’s assets. We have to analyze how a change in firm’s debt ratio affects: 1 – Profitability, measured with earnings per share (EPS); 2 – Market value of its assets; 3 – Share price; 4 – Cost of capital. Example: 100% equity finance Example: Borrow $100M @ 10% and repurchase of 1M shares EPS increases, but firm’s value remains the same. MM Theorem – capital structure does not increase firm’s value (in a world without taxes and costs of financial distress). This is explained by risk, any gain in EPS is offset by higher risks company faces by taking debt. In the example above, shareholders would be better off with leverage, though company’s management might think it is riskier to do it. So shareholder can replicate leverage on his personal account, by borrowing and buying new shares. * Annual tax shield: Tc x Kd x D ...
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...Chapter 15 Corporate Valuation, Value-Based Management, and Corporate Governance MINI CASE You have been hired as a consultant to Kulpa Fishing Supplies (KFS), a company that is seeking to increase its value. KFS has asked you to estimate the value of two privately held companies that KFS is considering acquiring. But first, the senior management of KFS would like for you to explain how to value companies that don’t pay any dividends. You have structured your presentation around the following questions. a. List the three types of assets that companies own. Answer: Assets-in-place, growth options, and nonoperating, or financial, assets. b. What are assets-in-place? How can their value be estimated? Answer: Assets-in-place are tangible, such as buildings, machines, inventory. Usually they are expected to grow. They generate free cash flows. The PV of their expected future free cash flows, discounted at the WACC, is the value of operations. c. What are growth options? How can their value be estimated? Answer: Growth options are not tangible. They include R&D, such as at drug companies and genetic engineering companies, and building customer relationships, such as at amazon.com. Growth options are valued using option pricing techniques in Chapter 17. d. What are nonoperating assets? How can their value be estimated? Answer: Nonoperating assets are marketable securities and ownership of non-controlling interest in another company. ...
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...NTRODUCTION Over the past a few decades, executive pay has risen dramatically in the United States. As of 1960, the average CEO at a large corporation made approximately $190,000 (equivalent to approximately $1.3 million today). The 1990s saw one of the greatest wealth transfers in history, as CEO pay skyrocketed. S&P companies CEO pay went from 1993 average of $3.7 to $17.4 million in 2000 [1]. In 2010 the highest paid CEO was Viacom's Philippe P. Dauman at $84.5 million in 9 months [2]. Motorola CEO, Sanjay Jha, pay package rose to $47 million in 2011, almost four times of his 2010 pay about $13 million [3]. As CEO compensation continues to soar while workers’ pay stalls, today, the average CEO makes 411 times more than the average worker (Figure 1). The explosion in executive pay has become controversial and criticized. The idea that stock options and other alleged pay-for-performance are driven by economics has also been questioned. Figure 1. Ratio of average CEO Pay to average production worker compensation in America Observers differ as to whether this rise is a natural and beneficial result of competition for scarce business talent that can add greatly to stockholder value in large companies, or a socially harmful phenomenon brought about by social and political changes that have given executives greater control over their own pay. "Today the idea that huge paychecks are part of a beneficial system in which executives are given an incentive to perform well has become...
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...Question 1 10 points Save Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports. sell yen put options buy yen call options buy futures contracts on yen sell futures contracts on yen Question 2 10 points Save A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.75. If the spot rate at the time of maturity is $.85, what is the net amount received by the corporation if it acts rationally? $74,000. $84,000. $75,000. $85,000. Question 3 10 points Save Magent Co. is a U.S. company that has exposure to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Magent Co. will: benefit, because the dollar value of its SF position exceeds the dollar value of its DK position. benefit, because the dollar value of its DK position exceeds the dollar value of its SF position. be adversely affected...
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...Peter DeVito Ed Travaglianti Cameron McNeil Corporate Finance Homework #1 1. 6 month | 1 year | Investment | C1 = 10,000 | C2 = 20,000 | 26,000 | r1 = 0.03 | r2 = spot rate = s | | 100 = 31+0.03+ 1031+s where 3 is the coupon payment based on a 6% yield s= 6.09% NPV = -C0+ C1(1+r1)+ C2(1+r2) NPV = -26,000+ 10,000(1+0.03)+ 20,000(1+0.0609) NPV = 2560.66 with positive NPV, YES, we should invest 2. Based on the Annuity Formula and assuming the same 9%, 30 year, with time t=0 (10 years ago) Monthly Payments = 4,023.11 Mortgage = 500,000 AC, r, t= Cr 1-1(1+r)t 500,000= 4,023.11(0.0912) 1-1(1+(0.0912))12(30) 500,000= 4,023.11(0.0912) 1-1(1+(0.0912))360 r≠ 0.09 r= 0.09*0.9122=0.0821 or 8.21% New formula then becomes: 500,000= 4,023.11(0.082112) 1-1(1+(0.082112))12t t= 23.2 years 3. Year | 0 | 1 | 2 | ∞ | Sales | | 100 | 110 | Cr-g=1100.05-0.03=5500 | Profit | | 20 | 22 | C∞= 1100 | Depreciation | | -10 | -10 | | ∆ NWC | | -10 | -1 | -55 | CAPX | | -11 | -12 | | Taxes (40%)(Gross Profit) | | -8 | -8.8 | -440 | Net Cash Flows | | -9 | 0.2 | 660 | CF=Gross Profit-Taxes-CAPX- ∆NWC R1 year: The 1 year rate should be equal to investing in four 3 month rates. FV3 month@ t=1 year FV=1 1+0.0344=1.03034 FVPV=1+r 1.030341= 1+r1 year NPV=0= -C0-91+0.0303+0.21+0.042+ 660 already accounted for r C0=651.5 4. pE=18 g=18% pE=1r-g ...
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...Unit 1 – AO1 – Investigate the roles and responsibilities of two contrasting public services and describe their purpose AO2 – Investigate the internal structure and functional areas for two chosen public services The two public services I am going to speak about are the prison service and the army. The reason is because both have a very important part of the keeping Britain safe. The prisons vision is to provide the very best prison service as possible and to help secure the following points. * Hold prisoners securely and safely * Reduce the risk of any prisoners from re-offending * Providing safe and well-ordered establishments in which we treat prisoners humanely, decently and lawfully To make sure the prison service actually completes their objectives they work in * close partnership with our commissioners and others in the Criminal Justice System to achieve common objectives * Obtain best value from the resources available using research to ensure effective correctional practice * Promote diversity, equality of opportunity and combat unlawful discrimination, and * Ensure our staff have the right leadership, organisation, support and preparation to carry out their work effectively. This is what the prison set out to achieve and how they plan to do it but there is a lot more involved in running a successful prison because a prison is a business. The prison has it goals but the prison needs top security to complete the goals. No...
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...XVIII AIRBORNE CORPS AND FORT BRAGG DFAC SCHEDULE SNAPSHOT NOVEMBER 2014 XVIII AIRBORNE CORPS & FORT BRAGG DINING FACILITY OPEN/CLOSE SCHEDULE November 2014 1-2 CLOSED POPE AAF Weekday 8-11 CLOSED 15-16 OPEN 22-23 CLOSED 27-30 82ND CAB CLOSED 1 Phone# 396-9993/ 7685 DINING FACILITY Location Goldberg Street Weekend Br: 0930-1300 Sup: 1600-1730 Find Your Location Bldg# M-5530 SMOKE BOMB CLOSED CLOSED CLOSED CLOSED CLOSED 2 Phone# 396-2592 /0103 Essayons Street Bldg# H-4842 2nd BCT Closed Weekends Br: 0930-1230 Sup: 1530-1730 Br: 0930-1300 Sup: 1600-1730 Br: 0930-1300 Sup: 1600-1730 Br: 0930-1230 Sup: 1530-1730 Brk: 0800-1000 Lun: 1130-1330 Din: 1530-1730 Brk: 0800-1000 Lun: 1130-1330 Din: 1530-1730 Brk: 0800-0930 Lun: 1200-1330 Din: 1530-1730 CLOSED OPEN CLOSED OPEN CLOSED 3 Phone# 643-6929 Gruber Road Bldg# C 9453 525th BFSB OPEN OPEN CLOSED OPEN CLOSED 4 Phone# 396-8063 Ricketts Street Bldg# 2-5112 WTB CLOSED CLOSED CLOSED CLOSED OPEN 5 Phone# 396-3436 Normandy Drive Bldg# A-4-1832 SWCS OPEN CLOSED OPEN CLOSED OPEN 6 Phone# 396-7291 Merrill Street Bldg# D-3624 3rd BCT OPEN OPEN CLOSED OPEN CLOSED 7 Phone# 432-8798/ 2298 Butner Road Bldg# A-3556 1st BCT OPEN CLOSED OPEN CLOSED OPEN 8 Phone# 643-6886 Bastogne Drive Bldg# B-1732 82ND SBDE CLOSED CLOSED OPEN CLOSED CLOSED 9 Phone# 432-5538 Longstreet Road Bldg# 3-5103 3rd SFG CLOSED...
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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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...CHARLES MARTIN IN UGANDA Purpose How operations differ from country to country due to different laws and regulations internationally. Discussion Internationally other countries have different laws. In this article they discuss how using different ways to approach a company internationally works, by comparing Charles Marin and James Green. Martin had a taste of the Ugandan culture because he went to African after he graduated college for the Peace Corps where as James Green did not have a taste of the African culture and had more of a US based culture and was not open to both as much as Martin was. Question 1: Describe Ugandan cultural attributes that might affect the operations of a foreign company doing business there. Comment: For the most part business in Uganda would be very different. They have a much different working style then here in the United States. Uganda has a few cultural attributes that might affect operations of a foreign company operating in Uganda. Starting off language gets in the way because Uganda is a country that has various types of religions and languages. As indicated in the article on page two “English is the official language, but many people speak only an indigenous language—mainly Bantu or Nilotic languages.” This may result in miscommunication because the company may not be able to interconnect with the citizens of the area. Also religion results in numerous types of controversies around the world and Uganda has many different religions...
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...Canadians take Passchendaele successfully. On November 6th, 1917 our Canadian soldiers captured the Passchendaele ridge. They had to face many obstacles but they made it. Canadians take Passchendaele successfully. On November 6th, 1917 our Canadian soldiers captured the Passchendaele ridge. They had to face many obstacles but they made it. Reporter Reporter Canadian Wounded at the Battle of Passchendaele More than 15,000 Canadians died or were wounded during the Battle of Passchendaele. Many of them drowned in the mud and shell holes. Canadian Wounded at the Battle of Passchendaele More than 15,000 Canadians died or were wounded during the Battle of Passchendaele. Many of them drowned in the mud and shell holes. The mud, flat terrain, and relative lack of preparation time and artillery support would make Passchendaele a far different battlefield than the one the Canadians encountered at Vimy Ridge. Currie took the time to carefully prepare as much as possible and on October 26, the Canadian offensive began. Advancing through the mud and enemy fire was slow and there were heavy losses. Despite the challenges, the Canadians reached the outskirts of Passchendaele by the end of a second attack on October 30 during a rainstorm. On November 6, the Canadians and British launched the assault to capture the village of Passchendaele itself. In excessive fighting, the attack went according to plan. After fierce enemy counterattacks, the last part of the battle...
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...(you can use a pseudonym) URS Corporation 3. Background/overview of organization * Size of company URS Corp has nearly 100,000 employees blend technical expertise with local knowledge to deliver innovations that have a positive physical, social, and environmental impact on our world. URS Corp operates throughout more than 150 countries around the world. URS Corp also holds the largest federal and state contract for VDOT (Virginia Department of Transportation). * Type of industry URS Corp is the leading industry provider of management and technical support services to U.S. government agencies the Departments of Defense and Homeland Security in particular positioned URS among the ranks of the leading U.S. federal services contractors. * Product or service URS Corp is North America’s leading providers of production, construction and maintenance services to the oil and gas industry (URS Corp & AECOM, 2015). URS Corp provides a service of multidisciplinary professional services firm providing skilled management and technical personals for federal contract positions. * Brief synopsis of quality management processes: An URS Corp quality management process begins with employees who have showed the skills of technical expertise in all fields and they must have an intimate knowledge of how that equipment has been designed to be put together. URS Corp believes that without their employees having an adequate background in management and in the new technology, he/she...
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...When the other wes moore friends talk him into going to job corp, I felt like he wanted to turn his life around when he agreed to go. He wanted to to do something productive with his life and wanted to better himself. Sad part about it it, he knew if he didn’t go he would end up dead or in jail. While he was at job corps he felt like he had a second chance at life and wanted to do better for his family. But later after returning home from job corps he realized that his problems wouldn’t go away and that they were real. Realizing that his problems wouldn’t go away, he soon turned back into his old self. He started back selling drugs and ended up being charged for killing a police officer. I felt like this happened because his past life will always haunt him, so he had to face it sooner or later. But I didn’t realize it was going to be so soon. They are in different places in this book to show the different situations they were in even though they had the same names. Wes Moore didn’t know he was going to end up in jail, and didn’t know how he was supposed to raise his child because he didn’t have a father figure to teach him that. “ Wes’s nonexistent relationship with his father probably contributed to his seeming indifference about becoming a father himself”. All he could rely on was his mother. The other wes moore turned his life around completely. Military school changed him for the best. He changed the way he act and the way he talks. I can relate to wes moore when he went...
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...John Pierce published an article in Laurier University’s Canadian Military History journal in 1992, which suggested that in the summer of 1936, “the historical reality of the battle was re-worked and reinterpreted… to symbolize Canada’s coming of age.” The construction of the memorial at Vimy began in 1925, and was intended to represent the entire contribution of the Canadian Corps to the First World War. Further, the monument served as a commemoration to the 19,000 Canadian soldiers who had been buried in unmarked graves. The inscription of the names of these men, the vast majority of which had not given their lives at Vimy, had the effect of “transforming Vimy into hallowed ground, an empty tomb, a place of pilgrimage” according to...
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