Buad 306 midterm1 formula sheet

Buad 306 midterm1 formula sheet - A Treasury-bill promises...

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A Treasury-bill promises to repay $10,000 in 12 months and the market interest rate is 7% how much will the bill sell for in the market: 10,000/1.07 Lecture 1 Capital budgeting - managing long term investments Capital structure - the mixture of debt and equity maintained by a firm Sole proprietorship - Has unlimited legal liability even if they are not involved with daily operations, not unlimited firm life Partnership - Advantages: more capital available, easy to start, taxed once, Disadvantages: unlimited liability, difficult to transfer ownership Corporation - Advantages limited liability, unlimited life, transfer of ownership is easy, easy to raise capital, shareholder diversification, can hire professional managers, but agency problems, Agency problem - the conflict of interest between the stockholders and management of firm, or principal and agent example of agency problem paying the CEO a salary based on the growth rate of the firm’s sales Ex. Paying the CEO a salary based on the growth rate of the firms sales. Lecture 2 Assets =Liabilities+ Stockholders equity NWC =(CAe– CLe) – (CAb – CLb) =(Cash+AR+Inv –AP or CL)07-(same)06 NWC is positive when cash in exceeds cash out Liquidity - liquid firms are less likely to experience financial distress but Liquid assets earn a lower return Income statement - report revenues and deduct expenses Matching principle -GAAP says to show revenue when it accrues and match expenses required to generate the revenue Marginal tax rate - amount of tax on the next dollar earned Average tax rate = Total Taxes/NI On the last amount of taxed you take the 197,567-100,000. Book Value of Current Assets: CA= NWC + CL Chapter 2 Net new borrowing = LTD 07’-LTD 06’ Book value OE =Common stock+RE Dividends paid = NI- RE (CA) = Inv+AR+Cash; ( CL) =NP + AP NI =Dividends+ Addition to RE NI =( Sales-COGS- Admin and selling expenses if any)-Depreciation= Taxable income = EBIT-Interest; Taxes=(TR)Taxable income Taxable Income =NI (1-tax rate) EBIT= Taxable Income+ Interest OCF = EBIT + Dep – Taxes NCS = NFA e –NFA b + Dep EBIT= Sales-Costs-Depreciation OCF = NI+ Dep CFFA = CFC + CFS NCS = Net Fixed Assets(NFAend-beg) + Dep OCF = Sales – Costs – Taxes CFFA = OCF - NCS - NWC CFTC = Interest- (LTDe-LTDb) OCF = (Sales – Costs) * (1-Tax Rate) + Dep * Tax Rate Bondholder=Creditor CFTS = Div Paid – (CS e -CS b ) New equity =-CS07’-CS06’ Income Statement = Net Sales- Costs-Dep. = EBIT – Int. = TI- Taxes = NI PROBLEMS: 15. Find Depreciation Expense NI=Div + add to RE TI= NI/ (1- Tax Rate) EBIT=TI +Interest EBIT= Sales-Costs-(Dep?) Chapter 3 Common size ratio = RE/ (Total liability and equity) Equity = CS+RE Market to book ratio = Market value per share/ Book value per share Short term solvency, or liquidity, ratios Current Ratio =CA/CL Quick Ratio = (CA-Inv)/CL Cash Ratio =Cash/CL NWC ratio to Total Assets = NWC/ TA Interval measure =CA/ Average daily operating costs Long term solvency, or financial leverage ratios
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This note was uploaded on 03/11/2009 for the course BUAD 306 taught by Professor Selvili during the Spring '07 term at USC.

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Buad 306 midterm1 formula sheet - A Treasury-bill promises...

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