Business March 10 - Business Personal Finance The value of...

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Business March 10, 2008 1. Personal Finance 1. The value of your money is constantly changing 2. Small sacrifices in life can produce big payoffs 3. Every decision involves tradeoffs 1. Opportunity costs 2. Risk-return 2. Finance vs. Accounting 1. Accounting is bookkeeping 2. Finance is where you can get money and how you want to use it how to meet goals 3. Capital structure 1. Mix of firm’s debt and equity financing 1. Equity is safer because you owe nobody money 2. Equity is shares 4. Leverage 1. Borrowing money to increase profit and return on equity 1. Earnings/equity on the firm 2. Financial leverage cuts both ways 1. Multiplies good results into great results 2. Multiplies poor results into terrible results 3. Return vs. risk analyses drive stock prices 1. Increases in leverage increases expected returns 2. Increase in leverage increases risk 5. Debt vs. Equity Financing 1. Debt 1. Bond 1. Get paid before stockholders if company liquidates
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2. Equity 1. Common stock 2. Preferred stock 3. Trade-offs 1.
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