...CTQ1 | | | | | | | | | | | | Capital Budgeting: Opening a new store | | | | | | | | | Capital Structure: Taking loans from a bank | | | | | | | | | Working Capital Management: Inventory | | | | | | | | | | | | | | | | | | | | | CTQ3 | | | | | | | | | | | | Double taxation | | | | | | | | | | | Limited liability and abillity to raise capital | | | | | | | | | | | | | | | | | | | | | | CTQ6 | | | | | | | | | | | | Maximize the value of the company. | | | | | | | | | | | | | | | | | | | | | | Chapter 2 CTQ1 | | | | | | | | | | | The rate at which an asset can be changed to cash. Low liquidiy may mean marking down the value of an asset for sale. High liquidity can be converted to cash without much effort. | | | | | | | | | | | | | CTQ4 | | | | | | | | | | | | Depreciation may not be found in cash flows, because there is no cash transaction. An expense like interest may be the same. | | | | | | | | | | | | | | | | Problems | | | | | | | | | | | | 1 | TA= TL + OE | | | | | | | | | | | | OE= 17200 | | | | | | | | | | | | NWC= CA-CL | | | | | | | | | | | NWC=800 | | | | | | | | | | | | | | | | | | | | | | | 2 | Income Statement | | | | | | | | | | | Sales | $586,000 | | | | | | | | | | ...
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...Running Header: Business Financing and the Capital Structure 1 Business Financing and Capital Structure Clifton Williams Strayer University Professor Henderson Fin 100 May 24, 2014 Business have to make many financial decision that a direct impact on operations and the ability to successfully compete in the marketplace. I will assume that I am a financial advisor to a business. I will give advice that I would give to the client 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...
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...decisions are of vital importance to all, since they determine the potential to succeed. The decision whether or not to invest in a particular business would be based on a careful consideration of some key financial indicators of that particular business. Aqua America (formerly Philadelphia Suburban Corp.) is the largest U.S.-based publicly traded water utility, providing water and waste services in 10 states: Pennsylvania, Ohio, Illinois, Texas, New Jersey, Indiana, North Carolina, Virginia, Florida and Georgia (unregulated). The first factor considered is ‘Volume’; volume here refers to the number of stocks bought and sold in a single day of trading. The average volume of stock traded has to be over 500000; if lower, then liquidity is low. Technical analysts strongly believe that “It takes volume to make price move” (Kapoff, 1987). The average daily volume of this organization was estimated to be 771119 which is above the 500000 mark, this indicates that the company’s stock is quite liquid which make investment worthwhile. The second factor considered is ‘Beta’ (volatility); according to the CAPM of William Sharpe (1964) and John Lintner (1965), ‘a stock’s risk is summarized by its beta.’ Investments with a high beta are always very risky while otherwise for investments with a low beta. It usually make more sense to invest in business with a low risk level in as much as the higher the risk the higher the return, it makes more sense to play safe while investing which is another...
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...Sources of Finance Loan from Family/Friends: Borrow money from another family member or friend, where length of loan, interest rate on loan and any other terms of the loan must be negotiated between parties. Advantages of a loan from family/friends is lower interest rates and more flexible repayment terms. Disadvantages of a loan from family/friends is lack of clarity with amount borrowed (the interest rate and the required payment terms) and also borrowing from friends and family can fracture relationships on a personal level Suitability Good Long or Short term finance option as terms of loan are decided between parties Interest rates are decided by parties Could be suitable source for Douglas Pty Ltd if family or friends have suitable amount of money for business and terms can be decided without affecting relationship. Bank Overdraft: Loan made by a bank in which the customer can withdraw more money from his or her bank account than has been deposited in the account. Advantages of bank overdraft is that it is a quick and flexible source of finance. They are easy and quick to arrange, with little fuss and It allows you to make essential payments when you need to borrow money. Disadvantages of bank overdraft are the costs as overdrafts carry interest (often at much higher than loans), Recall, the bank can recall the entire overdraft at any time. Security for overdrafts may need to be secured against your business assets, which put them at risk if you cannot meet repayments...
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...Task Brief 2 – Written Assignment Module Title: | International Business Finance | Assessment Title: | Written Assignment | Individual/Group: | Individual | Weighting: | 70% | Submission Date: | week 24 | Instructions To Students For Submission Of This Coursework Task Details: This task takes the form of an essay and constitutes 70% of overall assessment for the module. You are required to choose ONE of the following two topics: (i) Discuss and evaluate the advantages and disadvantages of the methods used in order to hedge against the exchange rate risk? (iii) Why is it so difficult to predict future exchange rates? Critically evaluate the main methods available for predicting the future direction of exchange rates and assess their effectiveness in providing forecasts of use to international companies. Particular instructions to students: The assignment is to be no longer than 3000 words and should contain critical analysis, relevant empirical evidence and examples. Purpose of the module:This modules aims: • To provide an understanding of the theories and empirical evidence related to foreign exchange markets, and the implications of these for international firms. • To generate an understanding of the methods available to international companies to finance international trade investment and the risk associated with investment operations. • To review the alternative sources of funding available to a company.• To provide...
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...Question (11-1): Define each of the following terms: a. Project cash flow; accounting income b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization; expansion project; replacement project c. Net operating working capital changes; salvage value d. Stand-alone risk; corporate (within-firm) risk; market (beta) risk e. Sensitivity analysis; scenario analysis; Monte Carlo simulation analysis. f. Risk-adjusted discount rate; project cost of capital g. Decision tree; staged decision-tree analysis; decision node; branch h. Real options; managerial options; strategic options; embedded options i. Investment timing option; growth option; abandonment option; flexibility option a. Project cash flow: The process of inflow or outflow of cash in any project is called cash flow. In project cash flow the increase in income results cash inflow on the other hand, expenditure results cash outflow. Accounting income: Accounting income is the result after deducting the total sales revenue from its expenses. The result of accounting income and cash flow differs in the financial statement because accounting income makes records of both cash and non cash transaction. While in cash flow only pure cash transaction are recorded. b) Incremental cash flow: Incremental cash flow is the additional cash that company may receive by taking a new project. If a company sees positive incremental of cash flow then it means the company can get additional cash flow...
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...Individual Paper: Workshop 1 – Discussion Questions “DQ” University of Phoenix – FIN/370 Finance for Business Week 1 100% Workshop 1 – Discussion Questions This paper will explore the discussion questions for the first of five workshops of Finance for Business. The three topics include: 1) The capital market, how the primary market differs from the secondary market, and in the student’s opinion are these markets efficient, and why. 2) The three primary roles of the U.S. Securities and Exchange Commission, how the Sarbanes-Oxley Act of 2002 augments the SEC’s role in managing financial governance, and if the writer thinks the passage of this act had the outcome of businesses becoming more ethical. Examples will be used to support this thinking.3) Ratios which measure a corporation’s liquidity, some problems associated with using these ratios, and how the DuPont analysis would overcome these problems. The DQ’s will be stated, and then the Discussion Answers will be explored below. DQ 1 – The Capital Market What is the capital market? How is the primary market different from the secondary market? In your opinion, are these markets efficient? Why? Discussion Answer 1 The capital market is “Any market in which securities are traded. Capital markets include the stock and bond markets.” (Farlex Financial Dictionary 2009) “Traditionally, this has referred to the market for trading long-term debt instruments (those that mature in more than one year). That is, the market...
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...Why is Finance so Important to a business? Finance is a crucial part of a start-up business; it is the cornerstone to determine whether or not your business will jump over the first hurdle. Without sufficient finance, a business has a very low risk of surviving the first stage of development. Finance can be important for various activities throughout the business starting with the purchasing of stock. If you are providing a product you will most likely need raw materials, if not then you will need general stock. Having more expensive, higher quality stock will push you to a competitive advantage. (Chron, 2013, Electronic Source.) Finance allows you to buy in order to sell and hopefully make a profit on those goods. If you are providing a service then finance will allow you to buy tools or equipment to improve your service. Start- up businesses might not necessarily have anyone other than the entrepreneur working, however if you have employees then finance will help pay their wages. In U.K. you pay business tax on your business profits, the amount of tax you pay depends on how much profit you generate. Finance is important to be able to pay these and calculate how much you owe to the government. Not having the sufficient finance will reduce the chances of the business accepting negotiations, therefore restricting the business in terms of growth (Chron, 2013, Electronic Source). Business finance is spent on two types of expenditure, capital and revenue. Capital expenditure is when...
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...FINANCIAL SERVICES BUSINESS PLAN 2007 – 2010 C Salter Chief Financial Services Officer Audit Exchequer & Procurement Projects Revenues Development & Supplies Accountancy Service Strategic Technical Venues Accountancy Estates Accountancy Management http://web1.com/finance Issue 1 March 2007 Process Owner: Chief Financial Services Officer Authorisation: Christine Salter Page 1 of 17 FINANCIAL SERVICES BUSINESS PLAN 2007 - 10 Contents 1. Overview of Service 1.1 1.2 1.3 Service Aims Services Provided Resources Summary 2. Contribution to Corporate Plan and Service Context 3. Performance Report 3.1 3.2 3.3 Performance Indicators Customer Focussed Services Achievements Against Corporate and Service Objectives 4. Future Service 4.1 4.2 Programmes, Projects & Improvement Actions Developing Internal and External Communication 5. Aligning Resources 5.1 5.2 5.3 5.4 5.5 Finance & Assets Efficiency People IT Delivered Systems Knowledge 6. Action Plan 6.1 6.2 6.3 Risk Assessment Sustainability & Equality Appraisal Business Continuity Appendices A. B. C. D. E. F. Issue 1 Business Objectives Matrix 2007/10 Business Objectives Update 2006/07 Workforce Planning Template 2007/08 Budget Analysis (i) Sustainability & (ii) Equality Appraisal Matrix Business Continuity Template March 2007 Process Owner: Chief Financial Services Officer Authorisation: Christine Salter ...
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...ACC00152 Business Finance Topic 3 Tutorial Answers 1. Widget Pty Ltd is analysing the prospect of purchasing an additional (and very specialised) widget-making machine, the XX1000. The XX1000 costs $150,000 installed and has an effective life of 10 years. The company will use the prime cost depreciation method for tax purposes and management expects it will be able to sell the machine at the end of its effective life for about $20,000. It is estimated that the additional machine will increase annual revenues by $200,000 and operating expenses will be around 80% of revenues. The expansion will require an additional initial investment of $5,000 in its stock of raw materials, which will be recovered at the end of the project. The company's tax rate is 30% and the required return is 12%. Prepare a schedule of the relevant cash flows generated by the new machine, calculate the NPV, and advise management as to whether they should invest the new machine. Depreciation: For an effective life of 10 years, the prime cost depreciation rate is 10%. Therefore: 150000 x 10% = $15000 depreciation expense per year. | Year 0 | Years 1-9 | Year 10 | Revenue | | $200 000 | $200 000 | Operating costs (200 000 x 80%) | | (160 000) | (160 000) | Depreciation | | (15 000) | (15 000) | Gain on sale of equipment* | | | 20 000 | EBIT | | 25 000 | 45 000 | Tax | | (7 500) | (13 500) | Incremental earnings | | 17 500 | 31 500 | Add back depreciation | | 15 000 | 15 000...
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...Plan Small Business Finances Assessment 1: Simulated Workplace Scenario: Introduction: For the case of this task, I will be simulating that I have invested my life savings to start a small business, that of a bakery. Having had previous skills in this industry, and already locating an ideal position with minimal competition, I will now undertake a number of financial projections for the business, with the end goal being to obtain finance to help with the start-up costs. The document will cover aspects as follows: Part A: • All costs, fixed and variable, relating to the start-up and general running of the business. • Prices of goods based off of costs and profit margin. • Break even sales points. • Pricing strategies related to market conditions. • Projected profit statement. Part B: • Set profit targets/goals. • Identify working capital requirements. • Identify asset requirements and asset management strategies. • Prepare cash flow projections. • Identify capital investment requirements. • Select budget targets and monitor financial performance. Part C: • Start-up and ongoing financial requirements • Sources of potential finance. • Cost of securing finance and strategies in order to obtain it. Part A: Research: The general running of the business will be done by myself and 2 full time employees, from a single location, operating 6 days a week, Monday through Saturday. The initial set up costs for the location, including 2 months of upfront rent and a...
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...Initial Public Offerings Name: FIN 370/Finance for Business Date: Initial Public Offerings Private companies transform into public companies to expand and attract investors. To do this they begin selling common stock to institutional investors who then sell the stock to the general public through a securities exchange. According to Mayo, 2012, “If this sale is the first sale of common stock, it is referred to as an initial public offering (IPO).” In this essay, we will attempt to describe the initial public offering for the global firm, Facebook, Inc. We will describe the role of the investment banker and underwriter, the role of an originating house and a syndicate, explain the pricing of the issue, discuss some of the risks involved in the public offering and how the securities laws deal with them, and discuss any foreign exchange risks the company can face with ideas about how to mitigate them. The first thing Facebook needed to do to launch their IPO was to hire an investment banker and an underwriter. Facebook hired thirty-three investments banks who acted as brokers to bring together individuals with funds to invest in Facebook. The underwriters in those investment banks together with Facebook agreed on a certain amount to raise on the IPO. Their underwriters provided several services, but the main role is basically to take responsibility of selling those shares to investors. If they fail to sell the shares, they still owe the agreed amount to Facebook. The investment...
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...ESS Products LLP The Business. ESS are a ventilation and electrical contracting business. Based in Liphook the business operates in London and throughout the South East. The main focus of the business is installing ventilation equipment into domestic properties. 70% of business turnover comes from working for Housing Associations in the London area. The company employs 16 people with the 2013/2014 turnover forecast at £750,000 which is 20% increase over the previous financial year. Internal sources of finance. Retained Profit: This is the cheapest form of finance and is a short-term source. This profit retained in the business at the end of the previous year’s trading can be used to grow the company organically – e.g. by spending on new equipment, staff and resources to grow their operations. This may mean potentially slower growth than taking out a loan to grow rapidly but more stable finances. It can also lead to higher long term profit as there is no debt to pay interest on for the business. As the business had a 20% rise in turnover this year it is likely to have increased its retained profit, which should enable them to fund further growth in the future. A way of boosting the retained profit is by reducing the owner’s salaries to retain profit in the business to fund growth. This may cause problems in the short term as the owners are not drawing enough salary, but in the medium term it can be highly beneficial for the company as a cheap way of...
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...FIN10708 Finance and Investment for Business Topic 7 Tutorial Questions 1. Problem 8, p. 383 of the textbook = on excel document 2. Problem 9, p. 383 of the textbook. 0.72 x 0.1062+0.32 +0.15652+2.07 x 0.3 x 0.48 x 0.06 x 00.185 then square root 3. Using information in Questions 1 and 2 above: (a) Calculate the portfolio’s returns in each of the years 2007 through to 2012 (b) Calculate the portfolio’s average annual return (c) Calculate the portfolio’s standard deviation using your results from (a) and (b) and check that this standard deviation equals the one you calculate in Question 2 above. 4. Problem 16, p. 384 of the textbook. 5. A market analyst predicts that the expected return on the All Ordinaries Share Price Index will fall by 10% this year. Telstra has a beta of 0.51 and BHP Billiton has a beta of 1.17. (a) What would you expect to happen this year to the return on an investment in (i) Telstra and (ii) BHP Billiton? (b) If you accept the analyst’s prediction, should your investment portfolio contain shares with mainly high value or low value betas? 6. Problem 21, p. 385 of the textbook. 7. Problem 22, p. 385 of the textbook. 8. Problem 28, p. 385 of the textbook. 9. Company A has a beta of 0.7 and Company B has a beta of 1.4. If the risk-free rate is 4% and the market risk premium is 7%, according to the CAPM what is the expected return on an equally weighted portfolio of A and B? Show how this can be calculated in two different ways...
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...Each week you will have a set of homework problems to complete. They are due by the following Sunday night at 11:55 pm, central time. For Week 1, please turn in the answers to the following questions: 1. Describe the field of finance. How is it different from the field of accounting? a. Finance is a powerful and influential field that can be defined as the art and science of managing money. Virtually all individuals and organizations earn or raise money and spend or invest money. Finance is concerned with the process, institutions, markets and instruments involved in the transfer of money among and between individuals, businesses and governments. b. Accounting is the methodical or precise recording, reporting, and assessment of financial deals and transactions of a business. Accounting also involves the preparation of statements or declarations concerning assets, liabilities, and outcomes of operations of a business. In other words you could best describe accounting as the process for identifying, measuring and communicating the economics information about an entity for decisions and informed judgments to make financial decisions as well as performing traditional accounting duties. 2. In a typical corporation the finance function is divided into two divisions, or departments. What are they? What does each department do? a. The Controller: Is responsible for the maintenance of adequate internal control and for the preparation of accounting records...
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