ats, Cuapten | + 2 fioontigs mane have huge sho ia ftenas ~Anveshmert decisions ~_Copstal by ay ecsiswds fooonsios AStOAS Lapis Stucke degision Leal forms 6) bursine S5e5 Sde Proprielrsh; 2 Portree 2 or porafisns Ouner_has all pits Roig re lua | lisaaited os [bie pastel No double faxakion Me cetbke bore LoS Usatinit ed Ubly Unsiaited tabi [ Deeple forasion. Himibed fuss. Rartrer cau de | More eynnrive | i ¥_$L0 coo Q_$ $0 e600 C29 You hae Waste) Viability if you incoporte He _<¢ end if yu they ar a partreakip sys wont fy cb Jerces Yow murde doubt tte, owt py pret | reece Actrua) desis us Cash _bosis ~ Aecuals — Ruenve Peleynixed wher gods ae tansfeed te teres ens Saeed eteesnineh eer Hey Occ wr eeaive, Rhos eaeeqaigel When cogh is aO® Aurel » Cash AL Pw 5Q0 Coo \Rowo )SO O00 OSS 400 Oce 460 0 ; los Ss ‘tL 260 OF & fy cosh flav peced Maoney Corlien Fopes 5) ave St GS bust for pexsenah = Paid te onage fe Linen Reale pears ~o ~ Frode lose = Motel plow for stocks ond bonds Copitel Morket a Peis = $5u2d Soares ave d a te is seen 5) SCOrrih ec West os Secenda cy Morkel - al Ceisting SCL HES HO fvercled Ga ren iNvesfou Gaoucrel Moket ~ Securities froded — Bonds 7 Shocks eee, stecks — Urats 4) c : ius iA Corporation . tsfeced Steck— Specab for Laces fep bass 6) boa _o Bond orepee ee a Brecker mierbels and feel Masa Broke nmerke hs — Sec, Eee _ F ESA 7 ce eee fig pga ood He dae ane brevgll lege Te trade Se ornk €5 - Ocgla- maskets — Got Lrecthinyg Grdes we ort Connpensoat om feo wresmeA revoke a. 7 bid 1 Wades j te a copubel morkeds Bid erie. — Nighet prig, « is Wing to : baer 7 Re a = Waal pale ele Sen Ty te Ve Q bio => 57,31 Ack. bid Ash =D $57,233 = 5783 -5 7,31 = po\09 2») 634,99 [stom trode lsoo x 50% x (O02 434,99) = IL 372,50 Q_ $24.94 d\_ Market vale &) frade > [erisitensa 1gee = 76 ASSmoney more ro Bek ere _ifesors trode tgs quad Qe) Ah > Bex 120 Gsb- wig) [oes Bid —)$ 262, 950 2072 '920 Mahahes of 1 yar or ewrrers Tess aod Copsted Markel $e RQ Aertel trot evables Splice bd) =§2 and dere Jeg loma tm dec epee ete mole fen co thons 0 am ie ga eee yy oot = 9243 120 2 {| NEE eA 2 Ability te Sols p, tts Short term obligafiers os Hass Lee. throughs galt Current Akhil —> CA = CL (Quick (Mei) te) Ralie\-» (01a —iaventers) = CL 2. ACH Meosure Speed with which vorions occoumby ane converted into sates J ce sh or inflrs /out flocs (toweclers humeve-] —> COGS = lnvertory[Bserage Glldion pried] —> (Acc Kee = Sales) X365 Averese 9. ied | ~3( Ace fas, Puccteses) X 340 ae BS DEBT (Debt ratio] —> Zot Iobithes = Jef Ascok (BEE Legs] ee (Clie. interest eonwd. roto} EIT = Interest i PROF TABIITY (Gress prt Maryia) —> Gross pit ~< Sole Creating ppil margin) > Openbicy piffl2 Sales prijs _ptorgin) —> Earring, asuiloble for Shchingiplecy = Sales (Comings per sho. } amis cual fr Sedalia * Srees antibody [ebuoron assets) —> Bxninyy eonibbh foc common Sectisheg : Tot nssots Pharnings asnilable fr amimon SteChistes = SRB ee ahy_ WEEKS + FIS4 Salesgaso 008 ALP= FO Ve =920 p= $20 Lp = fe BD=4 15% Stig = 200 000 ID%e Ror BR > SK y¥1 660 000 78% ¥ 1006 600 AR > FO/ye¢ ¥ $7500 600 7/2 x & Toe coo = 1439 356 1Ly [226027 WO J opp = 28 #e7\, 23 a PN a Fi 34 S26 SS in increc ga by Q2 00 coo C3y sae) Increase ba 316s 4F9, 4S ul Paiat a tom _ Pp vice aw —here are financial ond ner Kinane feelers te coms wher —Thwe oe § C's G) ced : ve cher oe oo seeee 4 Collastook £ Cendihenrsats, sre cedat ng ogencies (CRAs) Ore Cowgances bot collect arg morabain Corsunre cre iol. They tren sett tt fo businesses ja He former off i : O (onsunes tered report - Accormts Meceioble Marogtarcerf Common _lsflection Cdwrigenes * LeHers eTelehow Cones © Pegorad vigits, eCollection Agerwes ohego\ Ackion Menaging Aecocuks Paspble baw rere Indushies * —_Pucely looo m™ fre _o supplier exlerdin tems 6) d/10 net 20 Eom 1b 6 form takes te digcourd , iat Coy $480 [ tieee ~Co0a x sooo] b, feb | Soxing $20 —“whalis fe tbe ac coat A te $26 ~ Tea_follewieg ons prviole te general Cnaression hr _ cole akvy ‘Le cost 5) giving vp & cosh isto. 1. Appon ete £ A give = CD 365 x fos a4 Ae * A) Cosh Ais1S pee ee a Ps > 40 a) OC = 40440 Ace? — fo = 180 A, 3 bo 8) = GeO = a Ol = 1ao My 15) ¥[%exm) - (aes) = $4 442 bod Ells 1) 25/5 net 30 Eo 1a S06 — (25% x 12 500) =$layga 75 i) Apprexi moe cect 4) Sevag wp. co 65 2 LA X BLS 25 86% EB Discornt lan Sh Interest poid Te 5 eS. Vi {$< ooOO ny = fe 6a, I 1200 tod = Ive, 13 £00gives jah Monn i5 & 500 o) ut Discount if poy vitan 10 doxs §) 30 dens b oo within 10 4o c i 2 pe in lo 20 0 2) IF ou I Py within 10 drys geo ¥ 3b3_ cc 1ooy, £D 5 N ah BLS Vb 20 = ae y (27 47. ve = \¢e-fe ei Geese eee ath / 3S o By. BES Vth 2 ay x a eS Lt BS \x 2S at, 7 20.) Gly Ah 4 365 Ver yr = Yo aleck. £ Pee ase | 45 = Seats, No dey excel ae BS fh & Somer 7s Somme OD fate SSL Be _tetonts cost a givng p's O24 t ME New ye ig 40 = & 14. « ae 10 000 Yo x 1X SSF 34u 52 410 pep x 1s4+ % "Ae = $369 86 5 Cffectiie annual rate 394,52 BEUS8E lo C00 10 £00 Sees See Ses eon cS (eRe)[IPERSONAUFINANCE|EXAMPLE'SI20)> Fred Moreno wishes to find the effective annual rate associ- ated with an 8% nominal annual ate (r= 0.08) when inter- O08)! 1 = (1 + 008)! ~ 1 = 1+ 008 ~ 1 = 0.08 = 8% 2 forse ompomting <1 (1s 0001 = ose 1~ aon ~ a1 Approxion te. tost ef giuing — CD , 26.5 ash di, Gos! Ebfeck onnvol — +0 + —1 vate, a ewe rate _ nt 4 jatee st +a Coet 2 giicy ug = cD ¢ BES l_Discowrel Ipo% —CO nv\e KWH “6 WW wi Bark rans — lean inlegs cates K Computing atere st ~_lterest is cre Of mvatualy de trie Orrral rate sy taleest paid foe o oe yten a 1s =p lntecst Jaa ¥ Lean inter, es — bner berrove pos iatered in adver te He bark edu ch te joteres) poogueet brows fe loon princys al, is Phe barre rlleives less monty ten oon Pow velve —_Thes ig @ dis court loa ~hke_achel panel ote Be a | geen discout an cs interes Ariat herrewed — Interest —lnteest cates — Usually applied to debt inchrsataks such OS Work lone o- bends © Whe Compensahion paid) buy fe _bocrene 4 funds te He lender; fre, fie berrerved po ies, 4a cost a boring finds — Begotive interest cate — The investor re@ives ne ‘ubere st ord espenbioM, pooh intel te bok rater Han the eter wens rod. Interest wate Ardemonrtals - Non. j sol ake 6) jaterest Ackrol rede interest Charged by He Supple fronds ond pord by derronder-ats, Rad Rate J tarerest — Robe 6) rebiny on or investment measned net 4 dello Wt in pe incest in _purdhe Sing goerér teat ty inveshment provides ~_Meospres fhe rote 4) inueoge é Pict owns pete (ade fant, acy feo =u (be) } C= noming) inteest ret. ~ echt role cts wal inteest vot — Momingl pete lest inflosion 1s ep petted inflation ote Heory, a risk -~ pee beh Re = Bish. fee oe = po tte thsest desry Qo ronth There ig rot Cucn in Trecanyy Bi Res rai (b9) Cj = Aomim) cet on invesfrrent f 2ish preminin above He nish - free me for Aes investment | ce Re. {z,s) efi NOTES Ace * (Peal oda titi eS Frocating daring the year © Untecied Short -tem fironcing —p Shot tenn Anger cing withet pledying assets os coflate-al!Accarals Paine ate (from bark) > lowest ae 4) inderest Charged by leading bor on _hucinss loon fo Mee wrest important business berreres- fived rate _» Set ebove Point rok, and rearing loss = mnemyng tol mahorchy, seen vat pss wotesiccadalloaced) Rote => _hteest discer—ab > Interest Dotat borrowed loan Amat bocromed — In —_Siage pope loon 2 Shect tern, one Hime loon node fo aw benerie ee reed buds bo a Specific Propose __fe- & Sheet pericd - E35 Unsecured Sources of Short-Term Loans: Bank Loans (cont.) blades, recently borrowed $10 )0 from each of two banks—bank A and bank B. The-ioans were incurred on the same day, when the prime rate of interest was 6%, Each loan involved a 90-day note with interest to be paid at the end of 90 days. Unsecured Sources of Short-Term Loans: Bank Loans (cont.) Gordon Manufacturing, a Ps100 0 of rotary mower The interest rate was set at 11/.% above the prime rate on bank A's fixed-rate note. Over the 90-day period, the rate of interest on this note will remain at 71/.% (6% prime rate + 11/,% increment) regardless of fluctuations in prime rate. The total interest cost on this loans $1,849 [$100,000 x (71/.% x 90/365)],which ins that the 90-day rate on this loan is 1.85% ($1,849/$100,000). Because the loan costs 1.85% for 90 days, it is necessary to compound (1 + 0.0185) for 4.06 periods in the year (that is, 365/90) and then subtract 1 to find its effective annual interest rate: Effective annual rate = (1 + 0.0185)#% - 1 = 7.73%Unsecured Sources of Short-Term Loan: Bank Loans (cont.) Bank B set the interest rate at 1% above the prime | rate on its floating-rate note. The rate charged over the 90 days will vary directly with the prime rate. | Initially, the rate will be 7% (6% , but when the prime rate changes, so will the of interest on the note. For instance, if after 30 days the prime rate rises to 6.5%, and after another 30 days it drops to 6.25%, the firm will be paying 0.575% for the first 30 days (7% x 30/365), 0.616% for the next 30 days (7.5% x 30/365), and 0.596% for the last 30 days (7.25% x 30/365). Its total interest cost will be $1,787 [$100,000 x (0.575% + 0.616% + 0.596%)], resulting in a 90~ aay rate of 1.79% Unsecured Sources of Short-Term Loan Bank Loans (cont.) Again, assuming the loan is rolled over each 90 days throughout the year under the same terms and circumstances, its effective annual is 7.46%: Effective annual rate = (1 + 0.01787)#° - 1 = 7.46% Clearly, in this case the floating-rate loan would have been less expensive than the fixed-rate loan because of its generally lower effective annual rate. E52 Personal Finance Example Megan Schwartz has been approved by Clinton National Bank for a 180-day loan of $30,000 that will allow her to make the down payment and close the loan on her new condo. She needs the funds to bridge the time until the sale of her current condo from which she expects to receive $42,000.Personal Finance Example (cont.) a Clinton National offered Megan the following two financing options for the $30,000 loan: (1) a fixed- rate loan at 2% above the prime rate, or (2) a variable-rate loan at 1% above the prime rate. Currently, the prime rate of interest is 8% and the consensus forecast of a group of mortgage economists for changes in the prime rate-over the next 180 days are as follows: CS ~ 60 days from today the prime rate will rise by 1% ~ 90 days from today the prime rate will rise another 1/.% ~ 150 days from today the prime rate will drop by 1% Using the forecast prime rate changes, Megan wishes to determine the lowest interest-cost loan for the next 6 months. persong WS. Example (cont.) Fixed-rate loan: Total interest cost over 180 days = $30,000 x (0,08 + 0.02) x (180/365) = $30,000 x 0.04932 = Variable-rate loan: Total interest cost over 180 days = $30,000 x [(0,09 x 60/365) + (0,10 x 30/365) + (0.105 » 60/365) + (0.095 « 30/365)] = $30,000 x (0.01479 + 0.00822 + 0.01726 + 0.00781) = $30,000 « 0.04808 » $1,442 Because the estimated total interest cost on the variable-rate loan of $1,442 is less than the total interest cost of $1,480 on the fixed-rate loan, Megan should take the variable-rate loan, saving about $38 in interest over the 180 days. Chi [er P6~1 Interest rate fundamentals: Real and nominal rates of return Nick is a product man- ager at an investment banking firm. When his supervisor asks him to price an invest- ment product, Nick conducted some research to obtain market information, According to his research, the rate of return of 3-month Treasury bills is 6% and the expected inflation rate now stands at 3%. Nick also observed that the risk premium of an investment product with similar characteristics in the market is 5%. Based on the information, what should the nominal rate of return of Nick’s investment product be? Rem: relum = vish- feo rote + risk proniun = bA 45% a)6-8 Term structure A 2-year Treasury bond currently offers a 6% rate of return. A 3-year Treasury bond offers a 7% rate of return. Under the expectations theory, what rate of return do investors expect a 2-year Treasury bond to pay during the third year? a Cxporkd fem belreen year 2 3 Pe ve ©, He expel ons oor s — Op 2)" ZONE x lite) (14 c0 a = (4 ©,60)x (4) ee s - 7, lac = NWOT 106* = 1090 2 o — = 4 027- P6~10 Bond interest payments before and after taxes Your company needs to raise $50 million, and you want to issue 10-year annual coupon bonds to raise this capital. Suppose the market requires the return of your company’s bonds to be 6%, and you decide to issue them at par a. How many bonds we : ae b. What will be the tora Pat Value for a bond is typically $1,000 or $100 mature in year 10? because these are the usual denominations in which c. Suppose your compar they are issued. after-tax interest cost associated with this bond issue at the time when the bonds mature in year 10? a. The number of bonds to be issued = $50,000,000 + 1,000 = $50,000 b. The company needs to pay both coupons ($60) and par ($1,000) Total interest expense = $1,060 x $50,000 = $53,000,000 c. As interest payments are tax-deductible, the after-tax cost of interest payments is = The total after-tax expense =ats, PIS ocr Api + ACP cee = Oc ~ ALP cD 4 eh Tia aa al OL - 2,56 aS £D4 365 ep y 365° 10 y Bhi" ) 2 ; a ; a ak we Bés\ [iyo y 26 ew oD, 265° oe rae t VS % ITF - Yh aaTa = aoe ze -oy Boe (= a tirecere7) por On 807 | agpep — ewe Fer) om N4ls 666 _ disput pon Sf 3) $/5 600 Midvcly jalecest fre; Dien |= fltit ce (th) 410 000 ¢lo 000 Oe, 90 dey [ey !E4e i 4 130.365 )-) { (+ 1s# Ea Cen = LS ee et eo =a LIT (i 249 PD \ Ish $90 *34 se “ aot TBD 29] tt 4 (6 eee xK ope ) fis =O WG > 8 Cie cee Oley x (IOTBS)= 3B BEY, RE EAR a 5Week WV 4 13 a SE pe ay eg eS Financrol leerege OL D> Rlatioship bebreern fiong sols rereug ond ibs earnings interest nd _toxes CEB1T) before efi > Riahmshie belreen fremis EBIT ) thes. Common bloca Lamungs pic Sore Cees) Tete _lwe-age —> Combination §) firowcial Quod) Operating loverege Te, Bemings ove lable far Grmen slecrbel Garniags per Shove tA LS = Shore¢ Degece O apusabiny Heinys (DOL) > Ad ta NT = Qy(P_vo) Q y (P-vC)-FCth, Degree 4) Frourciol lacese (DEL) > ZA in EPS ZN in EBIT aie wwe crs aa eae fe Dae aD Ol= xa le). BEP—> SP_VC oe a) €C533s828 ve > 64,80 Sp 42450 BEP_—=>__ 3 $25 24,50 — SO Pex 2s: =a — 12585 Ns by) EBIT 26 300 30 Sales sh StO C#SESO user Ss 24t%o 2g¢ce Boo ge asx oe 45 OO Gieco less Ce Leccoge iar otse ac onGe Poise BIT 16 Gass 1225 R uats [260 1 —4o Bo (Ome Batt) ee unds> =e: CoO 4O loo 3coe bo oC = 6337 = 13,337:EST ats, ~bloe loo loe (oe bas ets = 82,54: = €2,e4% é) DOL —>4A ERT Och —@ Zn EBC FD Sade ZL Stes > —3¢, 8944 —e 33,34 = 1% \Bd% 13, BB% —> 4,43 —> 44% PIBAm % EBT 1% 000 14800 hteestligo 000 415%) 22 S00 22 600 Pel Ofte interest 5a $00 PRooo kes tax lyon ) 2) 000 Bo see Wil fhe daces ae 4b 20 less prefeerd shocenoble- x xe Rico So fernicg ovarbeble fbr conneen Shock bdo 31 S00 4b 260 BI S00 + 3 bom 1L 2062 Bea EPS DD 2fL > tPS4n )? WBN 4BIT+y eT 7s 06 soo (a a Gia 13,2 24 $00 , 1co € BIT 4,2 loo «ERS 7S 660 = B24. = 4b— a PEL > py es 46,2 De tT 32,2 =m, piso R = 'R'00 000 [ase =o Gp EBT ~_Mnteest —— ~ Tones Seo fit of\e bas eae wW Der = — = eit D Ze acievd—fe EB T- 4 - (90 xy 100 Doo x 45 -1) Sis oo Iwo ove slog=1) - 500 87500 — 12 S00 => _l50 Cee 3 87S 66 =,fot —> aid, a _— kK The derision 4) assets in bonkowptey ) Secured creditors ore paid fist Hen uverured bb Creditors then _laglly 24uityhe ides * | ai bebe LH, = 12s, ond Ne Cloimas om ingore ord cassels Senion be ily Subudiirate be dobt Maturity Stated Rene ad mont laterest cledection Common StocR Ovncrshio + fivatel, Ow Spock) The Connor sloth 4) a a aay be Prive jn estes, ris stock is vot b traded. + Pra The Common Stock 6) o firm ts cused bes Prrblic iAvedorS; pris Stocks publicl traded «Cpe Owmed Glock) Tre Comme n stock 4) a fice is ouned bens, On Coxe Le lasts, Ho ork Lssesalls, Prvetely Cums) Co nnparies.ats, Wid ey Owned tock) The Common Stock a iran Is 6 A Lan pelted jad vidheall Soars 50 a Baek tect => lompoy, but owns mee Men S07. gy he omotter ently UY Lonsolidoted Si 2 ~ Sebcidionsy Cnn) ong) = Cabby hese shoves the porest Cony Buns. Holdings of More than 50% Consolidated statements indicate the magnitude and scope of operations of the companies under common control. Unilever (NLD) adidas (DEU) ‘The Disney Company (USA) Hellmann's Reebok ‘Capital Cities/ABC, Ine. Lipton Rockport Disneyland, Disney World Bertolli TaylorMade Mighty Ducks Knorr Ashworth Anaheim ESPNLP\OCK EXAM- i Lo bored a hes Gras ted bob ly Because iE Sen oA =e oa a busine ss Ge ae ta he wer Owe Can'} foal foo thoie Ae! latency 3. ra morke+ 18 9 plow shore I nuestoce dekh Ligud Searikies with mok—ib 6) less tel morked is Oo worhet Mot =n Suppliers and dewmrnrordes fon Jeng Jem far minke frorsactionS 45. AA > Inventory — Au Kecerables mae fo: oss Sales E ian ge ne ACERS Gro Che pe AAT je TSE AS te fhe thee cos LOS wel G6 fo WEP {Ure irene se 6 Reg tecasables. Metha tn larga Coe 6. CC = AAL+ ACP Oe zoe) 4 G0 4 Tt = las Jace > LO YCP—s €o Sales Bly 343 Soles #16 7 Wy a2 x 10% \r 84 243 Be em mes Bes aos Hie ae =HAre = 6:68 f rai Sy Bays QI FTF, 8 = 42023, le S255, 50 (8538449 — 9a ua pe = CO\EYRY vet profit margin —> Wet prdit 7p ewe, es ANIC 8u3sn3 = OOS yi0O = CY-= wy invertors, tumove ratio —> LOGS 7 pug Inunlory AVVH J wel =4,98 Tn) Asset turnover coe ~s wel Sates Jaws kt Asoks 84 343> 99690 = 18S a) Figundit A Ca — Inwdtory Curent mio = CL Quickrabio => Ci od 260 82 2E085 -\010t 20843 208 U2 = hots a Oag 4-2 » ee b2 —» ACP uy LQ — ape Safes —» BOnct LOSS -@ 2en'|| Raises > IC mel Cnventory) TA lec 5 B§ AN} —® 90wut Gales — LOS i AAL+ ACP — AP G i ba~ 78 %, = = ica ee Ee 40. 2O mill =< BLD E280 mill 360 5 12) Apprevi mot cost cD y—2b2 4) giv iro up ' A) ‘a 2 Ve y 360 Or , 26° Q5 Be Elita Len see S\ enna = 262. » por —|y- ? wee — Tay Ay ve Ons A362 the h peesa) liquidity righ DY deface ©) tateest rate righ.» Wg) Soles F o%e. E@IT F Myx EPS & ar7- Dos -» Az Exit 1e go BA SAS a a Myre S 1d wy 4 eb Dot » a Dor decarte He BRIT wotrld VACreose. ) OF —s Ax EPs Ax EBIT —~@ 99% Ie Ye —~— 1,57 ig) tPS —» Wek income — FePhered Diuidends Punrber GJ Commer Chore nitg oc Sso COO els —S STIE EEOI) IAtome > 4 600 66 © ats, _lecal boy ~> 15% Dushion ley —> 25% [Spain }€2-00Delivere’ id price including ransport Icost_is) Sei ee eTT———C——€E—————™"