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BA_315_LN_7C_Foundation_of_Competition_from_Finance_poin -...

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1 Foundations of Competition: Financial Managerial perspectives Supplementary Lecture Notes Ali Emami BA 315: Economy, Industry, and Competitive Analysis Department of Finance Charles H. Lundquist College of Business University of Oregon
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2 Foundations of Competition from Financial Managerial Point of View Total Cost, Mark up, ROE, ROA and Profit from Finance Point of View Assume firm is unleveraged (i.e., no debt). Firm’s costs may be classified in terms of implicit costs (opportunity cost of operating assets-borrowed from owner or share holders by issuing shares), and explicit costs (accounting costs). TC = Accounting Cost + Opportunity Cost TC = Explicit Cost + Implicit Cost Firm uses the most efficient (the lowest total cost) method of production (plant size). Let, C represent accounting costs per one period (say a year): 1. Operating Support Costs = OSC (Cost of Labor and Utilities) C =Accounting Cost = 2. Cost of Capital Consumption (Depreciation) = CCC 1. Cost of Land and Improvements OA = Operating Assets = 2. Cost of Plant and Equipments K e = The cost of borrowed capital (form owner or share holders) per period (say a year). Also, it represents the rate of return the firm could earn if invested $ OA in market
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