1.1.1 Why Study Finance?
Finance is about decision making.
Benefits > Costs = Make decision
If benefits and costs can be quantified using dollar values, then this is a financial decision.
Personal financial decision: Relate to person like saving, buy car.
Weighted Average Cost of Capital (WACC)
How to work out the discount rate (r) a firm should use in undertaking a npv analysis.
Use the average rate of return on the firms capital items, weighted according to the
percentage of the total capital of the fi
1 In Chapters 11, 12 and 13, payout decisions and nancing decisions are discussed.
Chapter 14 then considers the measurement of the cost of capital to be used in project evaluation,
while Chapter 15 provides an analysis of leases.
Chapter 16 reviews the
the proposed projects rises ., a be t as'he averzugemst o thzemmyzs existing projects
- acceptance of the project will not change the companys optimal capital structure.
9 For a diversied company, use of a single discount rate for all projects is likely
;._'"fks i m 3
a .taedixessicmnmrmiskait is also shown that the effectiveness of
9 The essential messa ,'.
the individual assets combined into a
diversication depends on the COrrelation or covariance between returns on
largest when there is negative corre
1. What is the price of a 180day bill of exchange, with
a face value of$500 000, if the yield is 6.50 per cent
If the purchaser in the previous problem sells the
bill 60 days later, at which time it is priced to yield
Business finance week 4 lecture notes
- Where a company borrows money to raise finance.
- Debt providers, have a contractual right to receive payement of the money lent.
Cost interest expense
Periodic cash flows fixed
Maturity fixed term
Chapter 1 Practice Questions & Solutions
How do you calculate the rate of return on a share?
The rate of return on an asset can be defined as the gain from an asset (economic profit),
divided by the cost of acquiring the asset (the cost of the in
BAFI- 3184 BUSINESS FINANCE
FV = PV (1 + r )
PV = FV (1 + r )
FUTURE VALUE OF A SINGLE SUM
PRESENT VALUE OF A SINGLE SUM
(1 + r ) n 1
FV = PMT
FUTURE VALUE OF AN ORDINARY ANNUITY
(1 + r ) n 1
FV = PMT
(1 + r)
In-class exercise Week 5 Questions and Solutions
You have predicted the following dividends for the next three years on Noitalls
Beginning in the fourth year,
Welcome to BAFI 3184!
WHAT IS FINANCE?
What is finance?
Finance studies and addresses the ways in which
individuals, businesses, and organizations raise,
allocate, and manage monetary resources over time,
taking into account the RISKS entailed in their pr
Risk and Return
Rates of Return:
Historical return is the return that an asset has already produced over a specified period of
Expected return is the return that an asset is expected to produce over some period time
Required return is the return an
Module 8 workshop
Question: What is accountability, and what is its relationship to (a) accounting, and (b) an organisation's
We can refer to the definition of accountability provided by Gray, Owen and Adams (1996, p.38), this being:
Business finance capital budgeting part 2.
NPV investment evaluation process.
1. Step 1 - Calculate depreciation.
2. Step 2 - Calculate any gain or loss on sale
3. Step 3 - Calculate taxable income, i.e. profit or loss
4. Step 4 Calculate the tax item, i.
BAFI1008 Business Finance
Practice Exam Questions
Sections B & C
Explain in simply terms what you would need to know and how you would go about
determining the interest and principal components of a loan repayment.
To start with this argument I want to differentiate first what is Positive Accounting Theory
(PAT) and Normative Theory. PAT predicts a certain financial report and tries to search an
explanation (or how the user react of what specific accounti
Assignment Question 1 (10 Marks,)
Read the following quotation from Miller and Reading (1986, p. 64). If constituency
support is necessary before particular accounting approaches become embodied in
accounting standards, does this have implications for the
Financial information consists of 2 important qualitative elements. Those are Neutrality and
Representational faithfulness. Even though to consider that financial information to be neutral
or representationally faithful it could be somewhat doubtful. Thes
Read and make notes on the two journal articles made available of Moodle: (Gray
1988) and (Baudoun & Willett 1995).
Baydoun and Willett (1995, p. 72) identify a number of problems in testing the
Hofstede-Gray theory. They emphasise that many accounting
Introducing an idea of neutrality and representational faithfulness has implications for how
financial accounting has traditionally been practiced. It became a standard practice for
accountants to exercise proper sense of discretion and utmost
As Watts and Zimmerman (1986, p. 7) state, Positive Accounting Theory is
concerned with explaining [accounting] practice. It is designed to explain and
predict which firms will and which firms will not use a particular accounting
method but it
Your answer :
The issuer of accounting standards in Australia is the _. = AASB
Australia has adopted the conceptual framework issued by the _. = IASB
The issuer of accounting standards in the USA is the _. = FASB
The efforts of the IASB and the FASB to de
Module 6 workshop
7.1: What is the difference between a positive and normative
theory of financial accounting, and is one better than the other?
A positive theory of financial accounting would seek to explain and/or
predict particular financial reporting
International Harmonisation of Accounting Standard between
Australia and India
ACCT29083- Theory of Accounting
Term 1, 2015
Prepared and submitted by
Gail Marie Arrogancia
Tutor: Maggie Williams
Due Date: 24/04/2015
Date Submitted: 24/04/15
What is capital budgeting?
Analysis of potential
additions to fixed assets.
Very important to firms
It is project evaluation
Goal of the Firm
Accounting rate of return
Payback period method
Net present value
Internal rate of return
When calculating NPV
Include all incremental cash flows.
Consider what difference it makes to the t
BAFI 3184 - BUSINESS FINANCE - SEMESTER 2, 2013 - ASSIGNMENT
NAME _ STUDENT # _ GROUP # _
Apple Inc. has just developed a new budget iPhone, named iPhone C. The budget phone will contain
a 1.5GHz processor, 4.7 display with 312 pixel per-inch display, 8-m
Topic 6 Cost of Capital
How to Work out the Discount Rate the Firm
should use in Undertaking a NPV Analysis?
Use the firms rate of return ie the return the firm earns on its assets/
Quick rough guide as to whether an investment is viable
Risk and Return - part 2
INTRODUCING A RISK FREE ASSET
Asset markets are perfect
- no taxes, no transaction costs, etc.
Quantities of assets are fixed and all assets are
marketable and divisible
The introduction of a risk-free asse
Business finance week 1
- Corporate finance oversees the finance activities, primarily concerned with
maximizing owners value by addressing the key areas of financing decisions.
Investment decisions. Corporate finance is a body of knowledge which
Business finance week 3 lecture notes
- Series of constant cash flows at the end of each period that goes on forever and
grows by a fixed percentage.
- We need to be able deferientiate between , nominal interest rate. Interest rate per
Business finance week 6 lecutre notes
Capital budgeting part 1.
What is capital budgeting?
Analysis of potential additions to companys assets.
Usually long-term decisions involving large expenditures.
Also known as Project Evaluation
Methods of Projec
Business finance week 5.
- Market price of shares, the market value of a share is the present value of all the
expected future dividends to be received from the share discounted at a rate of
return that reflects the riskiness of those dividends.
Which of the following is an incorrect statement regarding project evaluation analysis?
Depreciation results in a cash-inflow
The book gain on disposal of an asset results in a cash-infl