Assignment # 1
Assignment #1 (Due February 10, 2010)
Suppose you own 100 shares of Microsoft stock which you intend to sell today. Since you will sell it
in the secondary market, Microsoft will receive no direct cash flows as a consequence of your sale.
Why, then, should Microsoft's management personally care about the price you get for your shares?
The current market price of Microsoft stock reflects, among other things, market opinion about the
quality of Microsoft's management. If the value of the stock is low, this indirectly reflects on the
reputation of the managers, as well as potentially impacting each manager's value in the
employment market. Alternatively, if the sale price is high, this indicates that the market believes
current management is increasing firm value, and therefore the individual worth of each manager is
increased. Should those managers own shares of Microsoft, which many do, then they are also
affected personally by the market value of the stock.
You have just obtained financial information for the past 2 years for Jaxs Industries. The balance
sheets and income statements for these years are shown below.
Net fixed assets
Total liabilities and equity
As a Financial Analyst for a bank serving Jaxs Industries, you are asked to identify, for the year
2009, the financial cash flows for the company. That is, you need to show the components of the
cash flows from assets (CF(A)), cash flows to creditors (CF(B)), cash flows to equity holders
(CF(S)). Of course, you should make sure that the identify CF(A)=CF(B)+CF(S) holds in this case.