seminar1_A

seminar1_A - University of Portsmouth: Course: Business...

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University of Portsmouth: Business School Course: Applied Corporate Finance (APCOF) Seminar 1 [Answers]: Decision Making in a Firm FINANCIAL STATEMENTS [1] Assets Current assets Cash $ 4,000 Accounts receivable 8,000 Total current assets $ 12,000 Fixed assets Machinery $ 34,000 Patents 82,000 Total fixed assets $116,000 Total assets $128,000 Liabilities and equity Current liabilities Accounts payable $ 6,000 Taxes payable 2,000 Total current liabilities $ 8,000 Long-term liabilities Bonds payable $7,000 Stockholders equity Common stock ($1000 par) $ 88,000 Capital surplus 19,000 Retained earnings 6,000 Total stockholders equity $113,000 Total liabilities and equity $128,000 [2] Income Statement Total operating revenues $500,000 Less: Cost of goods sold $200,000 Administrative expenses 100,000 300,000 Earnings before interest and taxes $200,000 Less: Interest expense 50,000 Earnings before Taxes $150,000 Taxes 51,000 Net income $99,000 1
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University of Portsmouth: Business School Course: Applied Corporate Finance (APCOF) Seminar 1 [Answers]: Decision Making in a Firm OBJECTIVES IN CORPORATE FINANCE [3] One of the requirements of a good objective function is that it be observable and timely. What do we mean by “observable” and “timely” and why are these characteristics important? The objective should stated in terms of a variable that can be measured quantitatively. If it cannot, it is difficult to see how compensation schemes can be tied to it. The objective should also be defined in terms of a variable that can be measured frequently. If it is not, the rewards and punishments meted out to managers will not reflect their recent actions. (Market prices are observable and they are timely. Accounting income is observable but no always timely. Customer satisfaction is
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seminar1_A - University of Portsmouth: Course: Business...

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