305 ex1 cheatsheet

305 ex1 cheatsheet - SoleProp&Partnership= Corporations= :

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Corporations= Limited Liability Corporate tax on profits and personal tax on dividends Seperation of Ownership and MGMT:  Ad- Easy change of share ownership and Professional MGMT Dis- Principa-Agent Problem and Information assymetries Principal Agent Problem is when MGRs don't attempt to max sharhold value and Shareholders incur costs to monitor MGRs Information Assymetries- MRGs and Shareholders have different information about the firm Future Value = $100 x (1+r)^t Present Value = C/(1+r)^t      NPV =Investment -  PV of Investment The right discount rate is the expected return offered by another equally risky investment oReturn = Profit/Investment DF1 > DF2 Always in real world Perpetuity- A cash flow received forev like a limit sort of                        C           C             C        C           C           C PV=C/r   --NOW--------1---------2----------3-------4---------5--------6----…>>>> Perperuity Due         C            C           C             C        C           C           C Step 1:  Discount Cash flows starting from year 1 back to  --NOW--------1---------2----------3-------4---------5--------6----…>>>> PV1=C/r=138/.09 = $1533.33 Step 2: Add the additional cash flow at year 0 PV= C +PV1= 138 +1533.33=1671.33 Delayed Perpreutiy                                                              C           C           C Step 1:  Discount Cash flows back to year 3   --NOW--------1---------2----------3-------4---------5--------6----…>>>> PV3=C/4 = 138/.09  = $1533.33 Step 2:Discount PV3 back to year 0
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