MGMT310_lecture6_7

# MGMT310_lecture6_7 - Lectures 6 and 7 Lectures 6 and 7...

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ctures 6 and 7 Announcement : Quiz solutions were posted last week on Katalyst (see prior Lectures 6 and 7 email announcement for TA contact info) Before we start, let’s briefly discuss the Midterm coming up next week: Held in class (Wednesday, Feb. 8) Will cover everything we’ve done up through the end of this week (lectures 1 7) Will contain a mix of: true/false, multiple choice, and free style problem solving I’ve posted practice problems to help you prepare honor of the midterm I’ll hold extra office hours: Tues (2/7) 5:30 to 8:00 pm In honor of the midterm,Il l hold extra office hours: Tues. (2/7), 5:30 to 8:00 pm o (my office is in Krannert 541) Monday’s lecture (2/6) will be a review (no new material will be introduced)

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Last week we discussed… Financial planning / creating pro forma statements i.e., suppose we want to expand. How much more \$\$ of assets do we need, and how much external financing is required to make this expansion happen?? We left off looking at how required asset increase differs if we can change our operating capacity How might this change our pro forma calculations? Take a look at the final pro forma problem from Lecture 4/5, which I’ve posted as a practice problem with solution You’ll notice that sometimes EFN may be negative (i.e., we may end up with a financing surplus ) Now so far, we’ve had a target level of growth in mind, and asked ourselves whether it’s possible given our constraints… but it’s also helpful know (given our constraints) what is the max growth possible?? to know (given our constraints), what is the max. growth possible??
Financial policy and growth Under Percentage of Sales Approach: Internal growth rate 1 ROA b IGR ROA b b = plowback ratio Max. growth rate that can be achieved with no external financing Recall: ROA = (NI/Sales) × (Sales/Assets) Rate of internal growth depends on: Profitability (operating efficiency) Asset management efficiency (capital intensity) Dividend Policy

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Financial policy and growth Under Percentage of Sales Approach: Sustainable growth rate 1 ROE b SGR ROE b b = plowback ratio Max. growth rate that can be achieved with no external equity financing while maintaining a constant debt equity ratio ecall: ROE = (NI/Sales) ales/Assets) ssets/Equity) Recall: ROE = (NI/Sales) × (Sales/Assets) × (Assets/Equity) Rate of sustainable growth depends on: Profitability (operating efficiency) Asset management efficiency (capital intensity) Financial policy (capital structure) ividend Policy Dividend Policy This concludes our treatment of Chapter 4…
Time value of money And we now enter Chapter 5… Would you prefer \$1000 today, or one year from today?

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MGMT310_lecture6_7 - Lectures 6 and 7 Lectures 6 and 7...

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