...The Goal of Financial Management | 11 | | A More General Goal | 12 | 1.5 | The Agency Problem and Control of the Corporation | 13 | | Agency Relationships | 13 | | Management Goals | 14 | | Do Managers Act in the Stockholders' Interests? | 14 | | Stakeholders | 15 | 1.6 | Regulation | 16 | | The Securities Act of 1933 and the Securities Exchange Act of 1934 | 16 | | Sarbanes-Oxley | 17 | | Summary and Conclusions | 18 | | Concept Questions | 18 | | S&P Problems | 19 | 2 Financial Statements and Cash Flow 20 2.1 | The Balance Sheet | 20 | | Liquidity | 21 | | Debt versus Equity | 22 | | Value versus Cost | 22 | 2.2 | The Income Statement | 23 | | Generally Accepted Accounting Principles | 24 | | Noncash Items | 25 | | Time and Costs | 25 | 2.3 | Taxes | 26 | | Corporate Tax Rates | 26 | | Average versus Marginal Tax Rates | 26 | 2.4 | Net Working Capital | 28 | 2.5 | Financial Cash Flow | 28 | 2.6 | The Accounting Statement of Cash Flows | 32 | | Cash Flow from Operating Activities | 32 | | Cash Flow from Investing Activities | 32 | | Cash Flow from Financing Activities | 33 |...
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...2-1 CHAPTER 2 Healthcare Business Basics Concept of a business Legal forms of business For-profit versus not-for-profit ownership Organizational goals Financial goals Taxes 2-2 Concept of a Business A business is an entity that raises money in the capital markets, invests these funds in assets (land, buildings, equipment, inventories, and so on), uses these assets to create products or services, and sells these products or services to sustain itself. A pure charity is different. Why? 2-3 Legal Forms of Business There are four major categories of business organization (legal forms of business): Proprietorship (sole proprietorship) Partnership Corporation Hybrid forms How much does the organizational form influence the practice of healthcare finance? 2-4 Proprietorships and Partnerships Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Difficult to transfer ownership Unlimited liability Difficult to raise capital 2-5 Corporation Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Cost of formation and reporting Double (or triple) taxation for investor-owned corporations 2-6 Hybrid Forms of Organization Limited partnership (LP) General partners have control Limited partners are liable only for their initial contribution Not commonly used by healthcare providers Limited...
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...lack of funds. They go through Financial Intermediaries who provide indirect finance with Deposits of Cash and Cash Loans or through Financial Markets who provide direct finance in which when securities are sold and funds transferred. This allows the transfer of funds from people and enterprise to investors who have such an opportunity. Other then investment opportunities in businesses, borrower-spenders would want to invest the excess of their monthly salary or to even adjust the composition of their net worth. Those who go through indirect financing usually prefer to go though financial intermediaries to watch their money grow while direct financing allow them to purchase securities and bonds directly. Q2. Differentiate between the following types of markets: -Physical asset markets versus financial asset markets Assets are commonly known as anything with a value that represent economic resources or ownership that can be converted into something of value such as cash. The main similarity between both assets is that they both represent an economic resource that can be converted into value. But the difference is that physical asset can be depreciated over their useful life or term, while financial asset can always be revalued at any point of time. Physical asset are disposed off when they have served for their useful economic life but financial asset are redeemed once they mature. Most importantly financial asset do...
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...PREFERRED STOCK, LEASING, CONVERTIBLES, WARRANTS, AND OPTIONS II IIJ Understand the basic rights of preferred stockholders, the features of preferred stock, special types of preferred stock and the advantages and d isadva ntages of preferred stock. Review the basic types of leases, leasing a rrangements, the lease contract, the lease-versus-pur chase decision, the effects of leasing on future financing , and the adva ntages and d isadvan tages of leasing. Describe the basic types of converti ble securities, their general fea tures-incl ud ing the conver sion ratio, conversion period, conversion (or stock) value, and effect on earnings-and financ ing with convertibles. • II Demonstrate the procedures for dete rmi ning the stra ig ht bond value, conversion (or stock) va lue, and market value of a convertible bond. Explain the basic characteristics of stock purchase wa rrants, the implied price of an attached warrant, and the va lues of warrants-theoretical, market, and warrant premium. Define options and discuss the basics of ca ll s a nd puts, options markets, options trading, the role of call and put options in fund raising, and using options to hedge foreign currency expo sures. the DISCIPLINES CHA PTER 14 I S I MPOR TA NT TO • u((ounting personnel who will provide important data a nd tax insights to the lease-versus-purchase decision process. • information systems analysts who will design systems that p'ro vide...
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...ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. A security is a fungible, negotiable financial instrument that represents some type of financial value. The company or entity that issues the security is known as the issuer” (Definition of ‘Security’). Typically securities are divided into equities that represent ownership interest that the shareholders in an organization hold and debt securities representing borrowed funds that must be paid back. In this essay I will be discussing the significance of understanding the differences between fixed income securities and common stock securities. In the United States, the sales of securities are regulated by organizations like the Financial Industry Regulatory Authority and the Securities and Exchange Commission or for short the SEC. Publicly traded companies have two classes of securities they issue, which are common stock securities and preferred stock securities. A security is what is considered a paper asset with the potential to be traded in small denominations (mostly) in the secondary market. Securities that pay a fixed amount of income are considered to be fixed-income securities i.e. bonds or preferred stocks. Bonds are debt securities that are dispensed by the government and corporations having a face value, or par. Unlike bonds preferred stocks are a representation of equal ownership within...
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...Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the | | |market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to | | |maturity? | | | | | | |2. |Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate| | |(rd) is 4.75%, based on semiannual compounding. What is the bond’s price? | | | | | | | | | | | | | | |Long-term debt (bonds, at par) |$10,000,000 | | | | |Preferred stock |2,000,000 | | | | |Common stock ($10 par) ...
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...Case 41, MoGen, Inc. – Finance 675 David Biggs, Amanda McAllaster, Jake Unruh, Andy Rao Background Information MoGen is a leading company in the recently surging biotechnology industry that specializes in human therapeutic drugs that help offset the damaging effects of chemotherapy for cancer patients. The business model for all biotech companies is fairly similar: through extensive R&D, create new medical drugs, obtain FDA approval and product patents and launch them into the market. In order to achieve profitability and increase the likelihood of FDA approval for their various projects, MoGen must ensure a consistent supply of cash to fund R&D efforts and maintain financial flexibility in the face of the high levels of uncertainty that the industry as a whole faces. The biotech industry is truly what one would describe as a high-risk, high-reward venture. Because Mogen and the rest of the industry faces strict and rigorous standards set by the FDA, projects often fail or have extremely long lead-times, making investments riskier and additional compensation a must compared to most other industries. Many research efforts lead to failed projects due to FDA rejection and other projects face the threat of “biosimilars,” which are essentially copies of the drugs, once the product reaches the end of the patent-protection period. At the time, MoGen had several drugs that faced the threat of biosimilar competition in Europe, all due to patent expiration...
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...Much of the confusion that surrounds the wisdom of owning your home versus renting comes from the popular notion that a home should be viewed purely as an investment, the same way you would view a stock, bond, IRA, etc. There's some truth to that notion, but just as stocks, bonds and IRAs differ from one another, one's personal residence is a unique investment "instrument." Here a just a few of the characteristics that make home ownership unique: Owning a home affords a powerful way for you to leverage your capital. The purchase requires a relatively small down payment, yet your return is based on any increase in the total value of your home, amplifying even a seemingly modest rate of appreciation. Thanks to differences in the efficiency of the financial markets versus the real estate market, the purchase of a home offers you opportunities to add value that are not available to you when you purchase stocks or bonds. While you're competing against thousands of savvy investors in the financial markets, you may be competing against a relative handful of potential buyers for a given property. Combine the use of the Internet-based research tools and the services of an ERA real estate professional, and you have the power to be the buyer who finds the motivated seller with the attractively priced property, increasing the likelihood of equity appreciation from the day you move in. If you're an enterprising, creative buyer, put online information resources and the experience of...
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...whiskey in sealed glass bottles has now flourished in to a company with sales of $3.8 billion dollars (BROWN-FORMAN Our Company, 2012.) The following will contain information on the organizations most recent financial statements. Corporate debt Securities A debt security in finance is when a lender such as a bank or corporation lends money to an interested party looking for financial gain in the form of bonds. Debt securities are interesting because they serve the purpose of creditors who loan money to a borrower and accrue interest to sell them. They have value. For example, a creditor creates a binding agreement with a borrower listing all the financial terms for loan payment in the form of a contract in which will carry value because of the accrued interest attached to it. So with the accrued interest attached, these contracts carry value and now can be sold or even traded; hence debt security (secure debt). This is how creditors secure debt. According to Introduction to Financial Statements reading material, a debt security is also called bonds. Bonds are debt instruments to gain capital. In the Brown-Forman company,...
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...trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. CFA Institute is collaborating with JSTOR to digitize, preserve and extend access to Financial Analysts Journal. http://www.jstor.org Equity Style Timing Duen-Li Kao and Robert D. Shumaker h Thestudies reported erehad two purposes:(1) to reviewthe opportunities in short-termtiming strategiesin the U.S. marketand (2) to explorevalue versus growth investing in theoryand in practice. Wefound that timing strategiesin the U.S. marketbasedon asset class and size have historically provided more opportunityfor outperformancethan a timing strategy basedon value (versus growth), albeit with similar informationratios. A multivariate macroeconomic analysis shows that return differences between value and growth stocks can have a straightforward,intuitive o basis.In practice,theapproach f style timersmay vary,but successfulstyle timing dependson efficientimplementation. lan sponsors and portfolio managers recognize that style decisions can have a large impact on the performance of their equity funds. "Style" is broadly defined as any system of classification...
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...Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments, including both money market instruments and capital market instruments. The special role played by financial intermediaries in the economy. Here, it describes how financial intermediaries take advantage of economies of scale to reduce transaction costs, how financial institutions assist in the process of risk sharing and diversification, and how financial institutions overcome the problems of adverse...
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...March 3, 2014 Dr. Marcus Crawford Business Financing and the Capital Structure A business can be defined as an occupation, profession or trade (Dictionary.com, 2014). It can consist of a person or a partnership of some sort. With a business comes struggles and success, the way a person or partnership handles those struggles may determine their success or downfall. With any business their main purpose is to make money and to stay above the rest of the market. As a financial advisor the writer of this paper will describe the advice they will give to the client for raising business capital, outlining the advantages and disadvantages to all options and explain the historical relationships between risk and return for common stocks versus corporate bonds. Describe Advice for Raising Capital As a business owner or operator it is always wise to look at all options to bring in new revenue or increase the capital in a company. It is in the financial advisor’s opinion to consider the following options: Microloans, Bank-Term Loans, Asset Based Loans or Small Business Administration Loans. Each one of these options will generate increased capital for the business. Microloans are small loans given to small business borrowers to help businesses have working capital, usually reaching up to $50,000 (Entrepreneur Media, Inc., 2014). An average Microloan is granted for around $13,000 dollars dependent upon each situation given. The advantage of this option is it is usually granted to...
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...for raising business capital using both debt and equity options in today’s economy. I will give advantages and disadvantages of each option. I will summarize the advice that I will give the client on selecting an investment banker to assist the business in raising capital. I will discuss the historical relationships between risk and return for common stock versus corporate bonds. I will explain the manner in which diversification helps in risk reduction in portfolio. I will support my response with actual data and concept learn from class. As financial advisor to a business I will give my client advice on raising business capital using debt and equity capital with their advantages and disadvantages. As my clients advisor I would describe the two most common types of financing which are debt and equity capital. I would tell them the difference between the two and the advantage and disadvantage of the two. Debt capital is an agreement contract between lenders and companies trying to start or grow its organizations. All debt issued have a maturity date when the firms are to pay the bond principal (par-value or face value) to the bond holders. Business can borrow from banks, one popular source of debt financing is commercial finance companies. A debt holder can force a firm into bankruptcy if the firm have not met the terms of the contract. A periodic interest payment is due to the holder of debt securities...
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...Winnings-Looks Can Be Deceptive; Time Value of Money Case 7- It’s Better Late Than Never!; Retirement Planning Case 8- Paying Off That Dream House; Loan Amortization Case 9- Wake Up and Smell the Coffee!; Time Value of Money Case 10- Corporate Bonds-They Are More Complex Than You Think; Bond Analysis and Valuation Case 11- How Low Can It Go?; Application of Stock Valuation Methods Case 12- What Are We Really Worth; Valuation of Common Stock Case 13- The Lazy Mower: Is It Really Worth It?; Estimating Cash Flow-New Project Analysis Case 14- If the Coat Fits, Wear it; Replacement Project Analysis Case 15- The Dilemma at Day-Pro; Comparison of Capital Budgeting Techniques Case 16- Too Hot to Handle; Capital Budgeting Case 17- Flirting with Risk; Risk and Return Case 18- I Wish I Had a Crystal Ball; Real Options and Capital Budgeting Case 19- Can One Size Fit All?; Determining the Cost of Capital Case 20- We Are Not All Alike; Divisional Costs of Capital Case 21- Where Do We Draw the Line?: Marginal Cost of Capital and Capital Budgeting Case 22- EVA ? Does It Really Work?; Economic Value Added (EVA) Case 23- It’s Better to Be Safe Than Sorry!; Evaluating Project Risk Case 24- Look Before You Leverage; Debt Versus Equity Financing Case 25- Is It Worth More Dead or Alive?; Bankruptcy and Reorganization Case 26- Is It Much Ado About Nothing?; Dividend Policy Case 27- Timing Is Everything!; Working Capital Management Case 28- Getting Our Act Together;...
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...Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries This chapter provides an overview of the financial system in the US economy by describing the various types of financial markets, financial instruments, and financial institutions or intermediaries that exist. 1 The chapter begins with a general statement that clarifies what function financial markets and financial intermediaries have in the economy as a whole. It then deals more specifically with: The structure of financial markets and the ways in which different types of financial markets can be distinguished. Here, it discusses debt versus equity markets, primary versus secondary markets, exchanges versus over-the-counter markets, and money versus capital markets. The various types of financial instruments, including both money market instruments and capital market instruments. The special role played by financial intermediaries in the economy. Here, it describes how financial intermediaries take advantage of economies of scale to reduce transaction costs, how financial institutions assist in the process of risk sharing and diversification, and how financial institutions overcome the problems of...
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