...1. You are considering a project which generates $10,000 in 6 months and $20,000 in one year and will run you $26,000 today. You know these cash flows are exact. You also have the Treasury yield curve from the Wall Street Journal in front of you and see that the 6-month T-bill is trading at a 4% CBE discount rate and the one-year T-bond (which pays coupons in 6-months and one-year) is trading at par (100) with a yield of 6%. (Rates are CBE). Should you invest in this project? First I solve the one-year spot rate s: 100 = 3/1.04 + 1.03/(1+s) s = 0.0606 NPV = -26,000 + 10,000/1.04 + 20,000/1.0606 = 2472.64 > 0 Invest in this project 2. You are doing some bookkeeping concerning a mortgage you took out 10 years ago, $500,000 used to finance a home. You presume it is a 30-year mortgage. You are trying to determine the interest rate (mortgage equivalent yield) on the loan. You know that the monthly payments are $4,023.11. So, you assume therefore that the interest rate on the loan is 9% and call your mortgage broker to check this out. Looking at your numbers, he tells you that you have two things incorrect. First, this was a weird mortgage that did not start with a 30-year maturity. Second, the 9%, it turns out, was purely coincidental. He also tells you that the actual interest paid thus far is 8.78% less than that shown in your calculations based on the 9% interest rate and a $500,000 loan – that is the interest paid is .9122 times the figure calculated from your...
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...Procedure Cash Management Cash Management 1. DEFINITIONS............................................................................................................. 3 1.1. Cash Management ............................................................................................................................... 3 1.2. Cash Flow Analysis ............................................................................................................................. 3 2. SCOPE ....................................................................................................................... 3 3. TARGET/PURPOSE .................................................................................................. 3 3.1. Cash Management on plant/location level ........................................................................................3 3.2. Cash Management on group level ..................................................................................................... 3 4. CASH MANAGEMENT PROCESS ............................................................................ 4 4.1. Golden rule for cash and finance management at CO. ................................................................... 4 4.2. Cash Management Instruments ......................................................................................................... 4 4.3. Payment terms .............................................
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...Financial Management 1. What is finance? The businesses sources of funding. Management of finance is a cruel aspect of businesses success. It starts with sourcing (where the funds come from). Once finance is secured it’s funding, managers need to make sure it is applied appropriately. All business managers need to be aware of the need to manage cash flow in the business. 2. What is cash flow? The flow of money that comes into a business and that a business spends. 3. What are contingencies? Out of a businesses cash flow some money for contingencies need to be set aside. This is an unanticipated event that leads to financial difficulty. Businesses should have money saved for such events. 4. Credit ratings: A well-managed business has a good credit rating. This means lenders will be prepared to end the business money because they it is safe to do so. Credit ratings are determined by financial organizations that access the capacity of the business to repay debt and manage finances. If a business has a good credit rating, creditors will readily provide funds to expand businesses operations. It’s important because it determines weather a business will have funds to expand operations. 5. What is accounting? Accounting is an administrative tool for recording financial transactions, so that a summary of what has happened to the business money can be traced. Every financial transaction should be recorded and entered into accounts that can be summarized into financial...
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...Q1-1: Think of another company or product besides Apple’s iPad, and note that company’s connections between other functional areas and finance. I chose Starbucks. Starbucks is a $100 billion dollar company. On an article that I read on Starbucks Five year plan to accelerate profit and growth, it had great information on how to successfully run a business and what areas you need to excel in. The company start by wanting to be the employer people want to work for. By investing in their staff the can guarantee growth and development within the company. Like Apple they also believe in blowing out their competition and building up relationships with other companies. “Continue to build our leadership position around coffee agronomy, sourcing, roasting, brewing and serving handcrafted beverages.” Like Apple they also want to see the market around them and continue to grow to their customer’s needs. This allows for the company to continue to increase revenue by offering more products/ benefits to their customers. “Grow store usage across day parts with new product offers. In addition to breakfast, create new food offerings for lunch, afternoon refreshment and snacks, and evenings.” They also focus on growing and focusing on their own brand to make it the best out there and most known. Out of 15 people I asked today all 15 knew about Starbucks. These were parents from my son’s football team who are from all different ethnic, financial and society backgrounds. I feel that both these...
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...Finance is concerned with how individuals, such as managers, lenders, businesses, firms, investors, and borrowers allocate money over a specified period. This paper lists the definitions and roles of financial and accounting terms provided in the course design. The terminology that follows explains and interprets the concepts and elements relevant to the first week’s objectives and topics in Finance 370. Emphasis is placed on types of securities, markets, finance, equity, liability, ratios, and assets. Finance is the study of how people and businesses evaluate investments and raise capital to fund them. The key role of finance is the management of cash flow in deciding on investments, how to fund them, how to allocate money for day-to-day operations over time, and the interpretation of financial concepts, which is the central focus of finance. Efficient Market is a market price unbiased of the investments true mean value. The fact that the mean true value will deviate from the true mean randomly infers that there is an equal likelihood that prices may be over or under valued at different points in time. Because price is associated with the principle that market price reflects information, investors could drop, trade, or sell shares stocks, for example with Nike when any perceived risk from information that is available publicly to them so that investors cannot ever beat the market. The New York Stock Exchange is a good example of an organized market efficient...
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...Leeds Metropolitan University 4/30/2012 IFM PLC | Consultancy Report | Financial Analysis and assessing future options for the company | Mohamed Kamara and Iwi Ugiagbe-Green Jens Hagenbeck ID: 33269369 Executive Summary This consultancy report aims at the Board of Directors of IFM Plc a multinational company providing financial services and was being ordered by Finance Director Mrs. Diana Worth. It analyses and evaluates a prospective joint venture between a German subsidiary and EMF Plc, re-domiciling the parent company from France to Monaco and expanding into Asia. The financial analysis showed that a joint venture requires an €2 million investment, which could be funded by the shareholders offering a yield of return of 12%. Using the financial data provided and calculating the weighted average cost of capital and the Net Present Value, a WACC of 10% and a NPV of €2.051 million were the results, proving the worthiness of the investment into the joint venture. Before signing any agreements further research needs to be taken to evaluate non-financial aspects such as opportunity costs and other investments. The second part of the report deals with the re-domiciling of the parent company from France to Monaco. From a business perspective and logical point of view this step makes sense as a lot of business operations are being run in Monaco, but it could still damage the company’s image to move from France just for profit and also shareholders might...
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...corporate finance tend to be the best model to use. These concepts offer proven methods, which improve the financial success. Discussed below are basic corporate financial concepts, which can be applied and yield positive results. Principles of Corporate Finance When dealing with business investments most commercial entities have used corporate financing in the company. The principle of self-interested behavior is the principle which creates a financial advantage for all parties involved when the playing field is equal or all components associated with the deal are equal. As we strive to gain a deeper comprehension of business transactions through human behavior we find that each of the 12 principles carry invaluable weight to the success or failure of the company. Comparative advantage, diversification, options, risk-return tradeoff, signaling, and valuable ideas are some of the principles used in business dealings. Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business transactions. For a company to be considered profitable or successful, the cash flow must be accounted for accurate .The income statement also exhibits non-cash expenses which leads to fluctuation of cash flow. This is also the reason for requiring a statement of cash flows and implementing...
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...Corporate Finance Oscar Lewis August 16, 2014 Business Startup When making important business decisions, the concepts of corporate finance tend to be the best model to use. These concepts offer proven methods, which improve the financial success. Discussed below are basic corporate financial concepts, which can be applied and yield positive results. Principles of Corporate Finance When dealing with business investments most commercial entities have used corporate financing in the company. The principle of self-interested behavior is the principle which creates a financial advantage for all parties involved when the playing field is equal or all components associated with the deal are equal. As we strive to gain a deeper comprehension of business transactions through human behavior we find that each of the 12 principles carry invaluable weight to the success or failure of the company. Comparative advantage, diversification, options, risk-return tradeoff, signaling, and valuable ideas are some of the principles used in business dealings. Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Accounting Net Income and Cash Flows Changing a business from one process or industry to another will completely alter the process of recording business transactions. For a company to be considered profitable or successful, the cash flow must be...
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...Terms and Roles of Finance Bonnie Espanol FIN/370 January 13, 2014 Richard Putnam Terms and Roles of Finance • Finance Finance is the study of how organizations and people handle concerns associated with money and the markets and how to generate a profit in the future. The role of finance is essentially about the management and analysis of information about money and how to manage money for an organization. • Efficient market Efficient market is described as a market whose prices immediately respond to new information is announced to all contributors involved. The role of efficient market is to attempt to efficiently provide information publicly and accurately with market prices. • Primary market The primary market is the market is where new securities are sold as to generate money for the first time. The role of the primary market is selling securities and actually receive the cash that was obtained. • Secondary market The secondary market is where all trading previous issued securities or other assets occur. The role of the secondary market is to allow on investor to another sell or buy securities instead of the company itself. • Risk Risk is defined as any negative incidence that is started by external or internal weaknesses or the hesitation involving an investment to a company or shareholders. The role of risk is a preventative action to avoid any loss. • Security The term for security is notable financial claim that shows ownership that has...
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...Unit No.12 (Financial Management) Unit Code: AA/012/P013 Assignment Title: Expected Knowledge and Skills-- Finance Manager Assignment No. 12- AA/012/P013-IND Contents Acknowledgement 2 Task 1 3 What are the financial management and why it is necessary for an organization? 3 What are the financial objectives of the firm and how they are related to corporate strategy? 4 Corporate strategy is about the choices complete controls create regarding problems like the particular organization the company is in, whether new marketplaces would be joined or whether to take out from current marketplaces. These kinds of choices can commonly have substantial financial effects. If, for example, a decision is taken to enter a new manufacturing company, and current organization in that industry could be bought, or a new organization be started from the beginning (Van Horne, & Wachowicz, 2008). 5 How financial objective can be different in case of non for profit organization. 5 The financial objectives of the not-for-profit organization must agree with the objective of the organization and financial constraints. For example, if the not-for-profit organization is particularly pleased to be an organization, an organization increase national could cause you to lose its appeal. Compose a record of objectives that fit the objective of the not-for-profit organization and are possible objectives (Saunders, et. al. 2006). 6 Define the types of stakeholder a company have and...
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...2011 CF forecast for LL requested by bank (Finance) Our 2011 cash flow forecast assumes that the union will accept LL’s revised offer in June and the strike was only for April, 2010 which will not affect fiscal 2011 since the offer would be retroactive to April 30, 2010. Our forecast also assumes that MRL’s cash flows are excluded. Our calculations are in APPENDIX. It shows that cash flow for 2011 is forecasted to be $8,646,000. Furthermore, cash flow is expected to decrease steadily in 2012 and beyond. It is doubtful that LL can remain as a going concern. Our calculations are based on Mark’s assumptions about sales and operating costs reverting back to 2009 levels, as well as our own estimates of non-cash working capital declines and tax rates. Therefore, we cannot assure that our cash flow forecast will be 100% accurate. We should enquire Mark about why he thinks that 2011 sales and operating costs will revert back to 2009 levels, and verify its reliability. If the circumstances change, so will our analysis and conclusion about the Cash flow. Competitor’s offer for LL’s inventory and subsequent liquidation of LL (Finance/Tax) A competitor has offer $28 million for the inventory of LL. We will have to find the current value of LL and compare it with the offer to see if it worth accepting the offer and liquidating. Under the Earnings-Based Approach, we could apply the cash-flow and discounted model by using 20% rate which is the estimated shareholder’s...
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...evaluation. Despite this injunction, we find that several errors characterize the application of this concept. The more common misconceptions, along with suggestions to overcome them are discussed below; The concept of cost of capital is too academic or impractical. Some companies do not calculate the cost of capital because they regard it as academic or impractical or irrelevant or imprecise. These misgivings about capital appear to be unjustified. Such reservations can be dispelled by emphasizing the following points * The cost of capital is an essential ingredient of discounted cash flow analysis. Since discounted cash flow analysis is now widely used, cost of capital can scarcely be considered academic of impractical * Out of the various inputs required for discounted cash flow analysis, viz project life, project cash flow (consisting of initial investment, operating cash flows, and terminal cash flow) and cost of capital, the last is one viz the cost of capital can be calculated most reliably and accurately. So the concern about its imprecision seems to be misplaced. The other misconception is that, current liabilities (account payable and provisions) are considered as capital components. Sometimes it is argued that accounts payable and accruals are sources of funding to be considered in the calculation of the WACC. This view is not correct because what is not provided by investors is not capital. Current liabilities arise on account of an operating relationship of the firm...
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...the requirements set out in the table below for each question. Task # Topic Marks available Marks required to achieve competency 1 2 3 4 5 6 7 Correction of errors Correction of errors Correction of errors Statements of Cash Flow Statements of cash Flow Statements of Cash Flow Not for profit 10 5 10 10 12 28 25 100 6 3 6 6 8 16 15 60 LA012460, Learning Activity, FNSACCT405B, Ass 1, Ed 3 & 4 © State of New South Wales, Department of Education and Training, Version 1, May 2010 1 Tasks Task 1 Marks 10 Show the general journal entries (narrations not required) or other necessary action required to correct the following errors. a) An amount of $198 including GST paid for motor vehicle expenses has been incorrectly debited to the Telephones account. GST account and bank are correct. b) An amount of $132 including GST for electricity expenses paid has been debited to Drawings account as $132. The bank account is correct. c) A sales invoice issued to G Hanger for $350 plus 10% GST has been recorded in all accounts as $250 plus 10% GST. Control accounts are in use. d) A sales invoice to F. Street for $750 plus 10% GST was incorrectly posted to another accounts receivable S. Fleet. Control accounts are in use. e) A cash sale for $972 plus 10% GST was incorrectly posted into the Sales account as $792. The GST account and the bank account are correct. Task 2 Marks 5 The trial balance of R. Bert does not balance. The owner has asked you for your help and...
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...FIN/370 Week One: Defining Financial Terms 1. Finance: Is the study of how people and businesses evaluate investments and raise capital to fund them. The role of finance is to assist the corporation in money management. 2. Efficient Market: Is a hypothesis that suggests that market is fair in their pricing. The role of an efficient market is to make it so no person can make a huge return without being risker in their initial investment. 3. Primary Market: A primary market issues new securities on an exchange. The role of the primary market is for the issuing companies or group to receive cash proceeds from the sale, which is then used to fund operations or expand their business. 4. Secondary Market: Is the market where investors purchase securities or assets from other investors. NASDAQ is an example of a secondary market. Unlike the primary market, the cash proceeds in the secondary market go to the investor rather than the underlying company or entity directly. 5. Risk: Is the chance that an investor’s return will be different than expected. An investor is taking a risk when he/she is involved in investments that can possibly lost money. Knowing your risk is one of the most important things to know when investing your time and money in a business. 6. Security: Is a contract that represents ownership, a debt agreement, or the rights to ownership. Value can be assigned to a security such as; bond, stock, or/and note. 7. Stock: Is a form of security...
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...MANAGEMENT/Combined Studies | Lecturer / Tutor: | Posi Olatubosun | Module Title: | Principles Of Finance | Module Code: | OUBMC 1507 | 3. STATEMENT OF AUTHENTICITY: | | | I have read and understood the regulations regarding plagiarism, and in handing in this work testify that unless otherwise acknowledged, the work submitted herein is entirely my own. Student signature: | Gerard Reyford | Date: | 5TH June 2012 | Work which is not submitted by the date / time specified will incur the automatic penalty of being capped at 40% (lowest possible pass). This means 40% is the highest grade that piece of work will receive. It is vitally important that you plan your time to ensure that you submit your work on time. This means making allowance for possible delays in transportation, printing, and any other potential problems which may be planned for, and therefore do not constitute just grounds for mitigation. If you wish to apply for mitigation, you should make sure you have read the guidelines in the Student Handbook, and obtain a form from the office. Work which is late, and accompanied by an application for mitigation, will be capped until the outcome of the mitigation application is known. Should mitigation be approved, the cap will be lifted. Principles of Finance and Accounting Money makes the world go round and is the fundamental impression of economics. Finance is the study and looking at the way that people and organisations collect, distribute and utilize...
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