..."Financial Concepts and Financial Crisis" Please respond to the following: Explain at least two (2) ways financial systems and markets have had an impact in your life in the past or may impact you in the future. Financial markets and systems have an impact in my everyday life and will continue to do so in the future. I have funds in savings and I have various investments in which I am consistently monitoring and making alterations. Financial systems and markets allow for the generation and flow of funds. I am able to go to banks, withdraw, deposit, and borrow funds. I can invest funds in various forms in the stock market or otherwise. In doing this, financial systems and markets have allowed me to gain and lose funds. Overall these systems and markets allow the ease and transfer of funds, whether it be between persons, institutions, governments, or otherwise. Determine at least one (1) course of action the Federal Reserve can take to minimize the negative impact that a financial crisis could potentially have on the U.S. economy. Provide support for your response. One course of action the Federal Reserve can take to minimize the negative impact that a financial crisis could have on the economy is to be innovative. The Fed must leave room for it self to be more “fluid” and be able to adapt to changes as they come. Following strict guidelines and procedures that have been in place for years does not lend it self well to unprecedented circumstances. The Fed...
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...Handbook on Basics of Financial Markets NATIONAL STOCK EXCHANGE OF INDIA LIMITED Basics of Financial Markets What is Investment? The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment. Why should one invest? One needs to invest to: earn return on your idle resources generate a specified sum of money for a specific goal in life make a provision for an uncertain future One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past. For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 purchase today would cost Rs. 321 in 20 years. This is why it is important to consider inflation as a factor in any long-term investment strategy. Remember to look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value. For example, if the annual inflation rate is 6%, then the investment will need to earn more than 6% to ensure it increases...
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...The purpose of this review is to discuss the “Concept Review Video: Stock Valuation” from the WileyPLUS learning tool for Week 4 of this learning team assignment. Stock valuations allow the projection or prediction of market values for stocks or investments. The determination of these valuations is through the utilization of various methods. Net Present Value One approach that investors use to place value on the stock is to look at the Net Present Value from an organization's streams of expected cash flows. It is from this method that the potential investor can determine how the future cash flows will impact the future value of the stock and how it will be paid to the owners. The dividend discount model is used commonly to estimate the actual value of stock, as well. This transaction is done by discounting back the stream of dividends that may anticipate over a period. This model requires some perception of risk from the business model and financials, but offers the investor the ability to place value on what a stocks future value may be. Future Value The future value is referred to as the terminal value. The terminal value allows the investor to compare to similar companies and look at factors that would indicate the stock being over valued or under value. Future values do change for there are multiple variables that may impact the performance of the investment. Terminal value can be applied most realistically to annuities, which is an investment that...
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...CALIFORNIA PIZZA KITCHEN Teaching Note Synopsis and Objectives This case examines the question of financial leverage at California Pizza Kitchen (CPK) in July 2007. With a highly profitable business and an aversion to debt, CPK management is considering a debt-financed stock buyback program. The case is intended to provide an introduction to the Modigliani-Miller capital structure irrelevance propositions and the concept of debt tax shields. With the background of a pizza company, the case provides an engaging context to discuss the “pizza graphs” that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions. The case serves to motivate the following teaching objectives: • Introduce the Modigliani-Miller intuition of capital structure irrelevance; • Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered-beta capital asset pricing model (CAPM) equation; • Discuss interest tax deductibility and the valuation tax shields; • Explore the importance of debt capacity in a growing business. Suggestion for Advance Assignment to Students Students may consider the following study questions: 1. In what ways can Susan Collyns facilitate the success of CPK? 2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of...
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...The concept of taking on a new project, such as the Boeing is considering with the 7E7, is groundbreaking. It has the potential of pulling Boeing out of its financial slump and has the potential to appeal to a multitude of customers. Boeing needs to consider the value of this project to the company in the long run, however. To calculate the cost of capital, we need to use the Weighted Average Cost of Capital (WACC) formula, a shown below. WACC: (%debt)* (pretax cost of debt capital)*(1-marginal effective tax rate) + (%equity)*(cost of equity capital) In order to calculate Boeing’s debt percentage, it is assumed in this analysis that the capital structure remains the same and is unaffected by the current potential 7E7 project. The debt/equity ratio is .525, as listed in Exhibit 10 of the case. To calculate the total market value of debt, the market value of all of the bonds listed in Exhibit 11 must be summed. The market value is $5,023.28M. By dividing this value by .525, the market value of equity can be calculated at $9,568.15M. Dividing $5,023.28M by $14,591.43M (sum of market value of debt plus the market value of equity) and multiplying by 100 gives the percent debt of 34.43%. Please see Exhibit 1 for calculations. The pretax cost of debt capital will be the yield to maturity of a proxy bond. The bond that matures on 2/15/2013 will be used as a proxy for the entire cost of debt capital because of its relative size in relation to the entire company’s...
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...series of installment payments made either at the beginning or at the end of the payment interval Implies that the amount regularly paid to discharge an obligation is of equal size Note: in finding the size of the periodic payment, one of the most important factors to consider is whether the loan is due now or later The concept of amortization is applicable if the loan or financial obligation due now Finding the Size of Each Payment The size of the periodic payment to settle a debt is highly dependent on the time the payment is made. For ordinary annuity ������ ������ = ������ 1 − 1 + ������ −������ For annuity due ������ ������ = ������ 1 − 1 + ������ −������ 1 + ������ For deferred annuity ������ 1 + ������ ������ ������ = ������ 1 − 1 + ������ −������ Example The cash price of a shopping equipment was P 120,000. Alex bought it with a down payment P 20,000 and the balance was payable at the end of every quarter for two years. If money was worth 10% compounded quarterly, how much did Alex pay at the end of every quarter? Given: P= 100,000 f=4 t=2 r=0.10 A=? Since the periodic payment is made at the end of the payment interval, the concept of ordinary annuity will apply Answer: ������ = ������ ������ 1− 1+������ −������ 0.025 1− 1+0.025 −8 ������ = 100,000 A= P 13,946.73 Example John borrowed P 400,000 at 6%...
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...CHAPTER 15 Capital Structure: Basic Concepts Multiple Choice Questions: I. DEFINITIONS HOMEMADE LEVERAGE a 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: a. homemade leverage. b. dividend recapture. c. the weighted average cost of capital. d. private debt placement. e. personal offset. Difficulty level: Easy MM PROPOSITION I b 2. The proposition that the value of the firm is independent of its capital structure is called: a. the capital asset pricing model. b. MM Proposition I. c. MM Proposition II. d. the law of one price. e. the efficient markets hypothesis. Difficulty level: Easy MM PROPOSITION II c 3. The proposition that the cost of equity is a positive linear function of capital structure is called: a. the capital asset pricing model. b. MM Proposition I. c. MM Proposition II. d. the law of one price. e. the efficient markets hypothesis. Difficulty level: Medium INTEREST TAX SHIELD a 4. The tax savings of the firm derived from the deductibility of interest expense is called the: a. interest tax shield. b. depreciable basis. c. financing umbrella. d. current yield. e. tax-loss carryforward savings. Difficulty level: Easy 15-1 UNLEVERED COST OF CAPITAL b 5. The unlevered cost of capital is: a. the cost of capital for a firm with no equity in its capital structure. b. the cost of capital for a firm with no debt in its capital structure. ...
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...fixed, an investor uses bond valuation to determine what rate of return is required for an investment in a particular bond to be worthwhile. Formula to calculate the bond valuation: pb=I/(1+Y)^1+I/(1+Y)^2+I/(1+Y)^3+..............+I/(1+Y)^n+Pn/(1+Y)^n Where, Pb=Price of the Bonds I=Interest Payments Y= Yield to Maturity Pn=Principal Payment at maturity n=Number of Periods. Concepts of Yield to Maturity: The yield to maturity, or discount rate, is the rate of return required by bondholders. The bondholder, any investor for that matter, will allow three factors to influence his or her required rate of return. 1. The Required Real Rate Of Return: This is the rate of rate of return the investor demands for giving up the current use of the fund. It is the financial ‘rent’ the investor charges for using his or her funds for one year, five years of any given period. 2. Inflation Premium: The investor requires a premium to compensate for the effect of inflation on the value of taka. 3. Risk Premium: We must add the risk premium to the risk-free rate of return. There are to types of risk: business risk and financial risk. Short-Cut formula for finding out yield to maturity from the Bond price: Approximate yield to Maturity (Y’) = Principal Payment – Current Price Of the Bond Annual Interest Payment + Number of years to Maturity 0.6 (Current price of the bond) + 0.4 (Principal Payment) SEMI – ANNUAL INTEREST...
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...companies in the industry. They are known for high-quality, innovative products that are giving athletes a competitive advantage. This paper describes the history of the company, analyzes the company’s performance and required rate of return, discusses the projected future growth rate of earning, values the company, and provides a recommendation to buy stock at the estimated price target of Keywords: stock analysis, return on equity, projected future growth rate, required rate of return, intrinsic value A Summary and Technical Analysis of the Under Armour, Inc. (UA) Stock on the New York Stock Exchange Under Armour, Inc. (UA) was established in 1996 by Kevin Plank, a former captain for the University of Maryland football team. His concept for a better T-shirt was born on the field; on one of the many days when he and his teammates were drenched in sweat. As a result of this, including extensive research into synthetic fibers, he produced the first prototype for a new generation of performance apparel: HeatGear. His new HeatGear T-shirts helped to keep athletes dry and cool, enhancing former teammates running two-a-days under the hot Maryland sun. Within a few years, the company developed ColdGear and AllSeasonGear lines, and had products featured in the major motion pictures “Any Given Sunday” and “The Replacements”, as well as in ESPN Magazine. Soon the revolutionary material gained recognition, resulting in relationships with various professional sports leagues (e.g...
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...See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/228180753 Arcadian Microarray Technologies, Inc. ARTICLE · OCTOBER 2008 READS 516 2 AUTHORS, INCLUDING: Robert F. Bruner University of Virginia 287 PUBLICATIONS 1,490 CITATIONS SEE PROFILE Available from: Robert F. Bruner Retrieved on: 25 January 2016 Username: TO ACCESS THIS DOCUMENT This is a protected document. The first two pages are available for everyone to see, but only faculty members who have verified faculty status with Darden Business Publishing are able to view this entire inspection copy. Submit VERIFIED FACULTY If you have verified faculty status with Darden Business Publishing, simply enter the same username that you use on the Darden Business Publishing Web site, and then click “Submit.” Please note that this is an inspection copy and is not for classroom use. Faculty Register UNVERIFIED FACULTY If you are teaching faculty and do not yet have verified faculty access with Darden Business Publishing, please click on the “Faculty Register” link and submit your information requesting verified faculty access. Buy Case Now OTHER USERS If you would like to read the full document, click on “Buy Case Now” to be redirected to the Darden Business Publishing Web site where you can purchase this and other Darden cases. If you have any questions or need technical help, please contact Darden Business Publishing...
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...(a) A number of accounting concepts and conventions have been used by the accountant as a guide in preparing the accounts. These concepts and conventions have been derived over the years from the general accounting practices. Critically discuss the purpose of accounting concepts and conventions and its importance and contribution towards preparing the accounting reports. Purpose of Accounting Concepts The main aim for accounting concept is to maintain the uniformity and consistency in accounting records. These concepts constitute the very basic and premise of accounting. All the concepts have been created and developed throughout the years from experience and consequently they are all around acknowledged tenets. Accounting supposition and concept offer the bases in preparing, presenting and displaying even in interpreting general-purpose financial statements. There are some important accounting concepts that support the readiness and preparation of any accounting arrangement or financial statements such as Going Concern Concept, Consistency Concept, Prudence Concept, and Accruals Concepts. For example, Going Concern Concept is a company or organizations will not be going to bankrupt unless there have a confirmation and evidence to the contrary and this is supported by accountants. Purpose of Accounting Conventions An accounting convention refer to regular and common practices which are all around followed in recording and exhibiting accounting data and information...
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...Accounting 10 Key concepts of accounting Done by-Bemnet A.Mamo ID number-B0129FSFS0813 School of Business and Law 10/15/2013 Contents * Introduction……………………………………………. 2 Going concern……………………………………….. 3 Consistency……………………………………………. 3 Prudence……………………………………………….. 4 Accruals…………………………………………………. 4 Objectivity……………………………………………… 5 Realization…………………………………………….. 5 Dual aspect……………………………………………. 6 Materiality…………………………………………….. 7 Money Measurement……………………………. 7 Timeliness……………………………………………… 8 * Conclusion………………………………………………. 9 * References………………………………………………. 10 Introduction Accounting generally can seem to be a practical subject that would be very simple to focus on only the applications of procedures and techniques. But it is far more than just a bunch of calculations, until we can identify and interpret our production of the figures, the calculations are pointless. It also measures the works of a business in financial terms and provides various financial statements and reports for various transactions the business agrees (e.g., buying and selling goods) assumed the business. In organizing financial statements, accountants use certain fundamental concepts when constructing financial accounts and statements. Traditionally there are four main concepts; 1) Going...
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...What is a conceptual framework? Why is a conceptual framework necessary in financial accounting? .A conceptual framework establishes the concepts that underlie financial reporting. A conceptual framework is a coherent system of interrelated objectives and fundamentals that are expect to lead to consistent standards'. A coherent system of concepts that flow from an objective. The objective identifies the purpose of financial reporting. The other concepts provide guidance on (1) identifying the boundaries of financial reporting; (2) selecting the transactions, other events, and circumstances to be represented; (3) how they should be recognized and measured; and (4) how they should be summarized and reported. What is the primary objective of financial reporting? The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt instruments, and providing or settling loans and other forms of credit. Information that is decision-useful to capital providers may also be useful to other users of financial reporting, who are not capital providers What is meant by the term “qualitative characteristics of accounting information”? Qualitative characteristics of accounting information that distinguish better or (more useful)...
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...ADMINISTRATION (Hons) Entrepreneurship Bachelor OF ECONOMICS (Hons) Financial Economics UBAF1033 BUSINESS ACCOUNTING I TUTORIAL 3: ACCOUNTING CONCEPTS AND CONVENTIONS Adopted from: Wood, F. & Sangster, A. (2012), Business Accounting 1 (12th ed ); Thomas A. & Ward, A. M. (2009), Introduction to Financial Accounting (6th ed); Roshayani, A., Laily, U. & Siti Maznah, M., (2007), Financial Accounting An Introduction (2nd ed); Past year Business Accounting I Questions MULTIPLE CHOICE QUESTIONS 1. What accounting concept / principle describe the following statement? “All business transactions shall be expressed in common money terms to facilitate comparison & evaluation purposes”. (Woods, F., 2007, p.108) A Matching B Materiality C Monetary D Substance over form 2. “The business entity concept requires that a business is to be treated as separate from its owner, able to enter into business transactions on its own and be treated as a ‘legal person’” Is this statement true or false? A True B False 3. Which of the following statements are correct? (1) Materiality means that only items having a physical existence may be recognised as assets. (2) The materilaty concept indicated that those items that are not significant should be recorded. (3) The money measurement concept is that only items capable of being measured in monetary terms can be recognized in financial statements. (Woods, F., 2007, p.108 and 112) A...
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...9-295-100 Rev. August 7, 1997 Cross-Border Valuation Cross-border investment has assumed a prominent place among the key decisions facing investors and corporate managers. In today’s increasingly global marketplace, many investment projects, corporate acquisitions and mergers have important international components. The importance of cross-border valuation methods have been underscored by trends toward the relaxation of capital controls, European economic integration, and, since the early 1990s, the opening and growth of Eastern European, Russian, Asian and Latin American markets. Cross-border acquisitions have been a particularly prevalent form of investment since 1980. American corporations, for example, increased their acquisitions of foreign targets by 160% between 1980 and 1990. Acquisitions of American targets by foreign companies rose about 50% during the same period. Some transactions, such as Matsushita Electric's $6.9 billion acquisition of MCA, Inc. in 1991, have been quite large. The majority, however, have been well under $100 million in size, suggesting that these transactions are not just the domain of giant multinationals. Evaluating crossborder opportunities is a critical consideration of executives and investors from around the world. The objective of this note is to review basic methods of valuing cross-border investments and the main issues affecting such valuations. It is intended to be a source of guidance, not a comprehensive review of...
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