1. BUSINESS FINANCE

2. 1 3. 4. 3 (SoleProprietorships) (Partnerships :general and limited) (Corporations) 5. 6. 2 2 7. 7 8. 9. 10. 31. (Financing Decision) 11. 1. (Cost of Capital)2. (Financial Risk) 12. 2. (Investment Decision) 13. 3. (Dividend Decision) 14. (Financial Goal) (Wealth maximization) (Maximize Earning per Share) (Earning per Share)= 15. 1. 2. 3. 4. 5. 16. 2 17. 18. (FinancialInformation) 2 19. 2 Time Series Analysis ( ) 20. Cross Section Analysis () 21. 2. 3. 4.5. 22. 4 (LiquidityRatios) (Debt Ratios) (Profitability Ratios) 23. 1 2 24. (Liquidity Ratios) 2. Current Ratio () 25. 2548 Current Ratio = =2,241 = 2.72 824 2.1 2.72 26. 2. Quick Ratio Acid Test Ratio ( ) ( ) Current Ratio 27. Quick Ratio = - - = 2,241-1,329-21-35 = 1.04824 1.10 1.04 28. Liquidity of Receivable ()** (AccountReceivable Turnover Ratio) 1 29. = = 3,992 = 5.63 709.50 = + 2 8.10 30. ** (Average Collection Period Ratio) 1 = =365 = 65 5.6345 31. 2. Liquidity of Inventory () = 32. = 2.09 3.33 = = 365= 175 2.09110 175 33. (Debt Ratios) 1. (Debt toNet Worth Ratio) 34. = = 1,455= 0.81 1,796 0.80 0.81 35. (Capitalization Ratio) = + =631 631 +1,796 = 0.26 36. (Debt toAsset) 37. = 1,455 = 0.45 3,2510.40 38. (Profitability Ratio 1. (Profitability in Relation to Sales) 2. (Profitability inRelation on Assets) 39. (Profitability in Relation to Sales) (Gross Profit Margin) = x 100 = 1,312 x 100 3,992= 32.9 % 23.8 % 40. (Net Profit Margin) = x 100= 150 x 100 3,992= 3.76 % 2.70 % 41. (Profitability in Relation to Investment) (Rate of Return onROA = x 100 = 150 x 1003,046= 4.92 % 42. ROA ROA (Rate of Return on CommROE = x 100 43. =- = + + 44. (Coverage Ratios) 45. ** Interest Coverage Ratio = =EBITI= 39985 = 4.695 46. 4.69 47. Common Size Balance Sheets: 2001 2002 Ind.0.3% 0.4%0.3%0.0% 2.0%0.3% 22.1%25.1%22.4% 44.9%49.1%41.2%/ 67.2%76.6%64.1% 32.8%23.4%35.9%100.0% 100.0% 100.0% 48. 2001 2002Ind.18.3%12.5%11.9% 25.1%17.2% 2.4%17.1%11.7% 9.5%60.5%41.3%23.7%34.9%14.3%26.3% 4.6%44.4%50.0% 100.0% 100.0% 100.0% 49. Common Size (49.1%) (41.2%) () 50. Common Size :2001 2002Ind.100.0% 100.0% 100.0%98.2%86.7%84.5%11.7% 4.4% 4.4% 2.0% 1.7% 4.0% -11.8%7.1%7.1%3.0%1.1%1.1% -14.9%6.0%5.9% -5.9%2.4%2.4% -8.9%3.6%3.6% 51. Common Size (86.7) (84.5) (7.1) 52. : % 1 (2000)20002001 20020.0% 70.0% 105.0%0.0%100.0% 113.0%0.0%100.0%-8.0%0.0%518.8% 534.9%0.0% -430.3% 140.4% 0.0%181.6%28.0% 0.0% -691.1% 188.3% 0.0% -691.1% 188.3% 0.0% -691.1% 188.3% 53. 2002 2000 105% 2000 188% 54. 200020012002E0.0%-19.1%55.6%0.0% -100.0%47.4% 0.0% 80.0% 150.0%0.0% 80.0% 140.0%0.0%71.4%138.4% 0.0% 172.6%137.0%0.0%95.2%138.1% 55. +2000 20012002E 0.0% 260.0% 200.0% 0.0% 260.0% 200.0% 0.0% 260.0% 200.0% 0.0% 260.0% 200.0% 0.0% 209.2%54.6%0.0% -80.0% 133.9%0.0%95.2% 138.1% 56. 138% 105% 57. 4 58. (Cash Budget) ( 1 ) 59. 4 1. (Key Factor) ** ** 60. ** 2. 2.1 - - 61. : ... ... ...- - xxxxxxxxx : xxxxxxxxx xxx xxx xxxxxx xxx xxx 62. 3. 3.1 - - - 3.2 63. :... ... ...- - xxx xxxxxx xxx xxxxxx : xxx xxx xxx xxx xxx xxx 64. 4. 4.1 4.2 4.3 65. ** 66. AAA ......25xx ... ... ... xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx () xxx xxx xxx ( 67. 3 2549 300,000 400,000 350,000 300,000300,000 350,000 310,000 320,000- 10% 90 %- - 68. - 60,000 - 50,000 - 10,000 12 - 10,000 - 69. 3 2549 :400,0 350, 300,0-10% 00 000 00- 90% 40,00 35,0 30,00 0000 270,0 360, 315,0 :00 000 00- 310,0 395, 345,0 00 000 00 70. 10,000 (5,000) 35,000 40,000 60,000 65,000 50,000 55,000 100,00 ( 10,00010,000 0) 60,000 65,000 (20,500)79,500 71. 20% 80% 2 10% 90% : 40% .. .. .. .. .. 50% .. 160 180 200130 150 150 80 80 90 100 110 130 72. 5,000 - 20,000 10% - 16,000 - 8,000 - 15,000 - 30,000 73. 5 74. 75. 76. 77. 78. 5Cs Characteristic: Capacity: Capital: Collateral: Condition: 79. (Account Receivable) = ? ( or DSO) DSO = / = * DSO 80. : () = () () () = * : 81. 82. : 2/15 net 60 = * * % 83. 20 16 3,000,000 45 60 2/10, n/45 50% 10 84. = * DS = 3,000,000 x 30 36= 250,0000 = 250,000 x 20% = 50,000 85. = x x % = 2% x 3,000,000 x 50%= 30,000 20,000 86. () = * (%) * (%) % = () / () % = 87. 20 16 2,400,000 n/30 12 3,000,000 6 88. (2,400,000)= 200,0012 = 2,400,000(2,400,000x4) = 480,00 20 () = * (%) * (%) = 200,0002016x100 x 18%x 89. (3,000,000)= 500,00 6 = 3,000,000(3,000,000x4) = 600,00 20 () = * (%) * (%) = 500,0002016x100 x 18%x 90. (600,000 480,000) = 120(72,000 28,800) = 42 > =76,800 91. : > (Marginal Benefit) > (MarginalCost) 92. 6 93. 94. Inventory 95. 96. (Raw Material) (Supplies) (Work in Process) 97. 98. (Lead Time) 99. 100. 101. (Economic order Quantity : EOQ) (OrderingCost) : O = O x S 102. TC= O x S+ C x QQ 2 Q = S = C = O = 103. 12,500 12,500 20 50 - 100 - 500Q = 100; TC = O x S + C xQ Q 104. Q = 500; TC = O x S+ C xQQ2 =50x12,500 +20x5005002= 1,250 + 5,000= 6,250 (Q ) 105. Economic order Quantity : EOQ = C x Q = O x S2 QCQ2 = 2 (O x S)Q2 = 2(O x S) 106. 7 D = 160,000 x 0.5 = 80,000 /O = 400 C = 4 EOQ= 2(O x D)CEOQ= 2(400 x 80,000)4EOQ= 4,000 107. = + TC(EOQ) = CxQ + O xD2Q= 4 x 4,000 + 400 x80000 24,000= 8,000 + 8,000 108. ( 5) D = 1,000,000 / 200 = 5,000 O = 500 C = 10 / 6 20 Q= 2(O x D)C = 2 (500 x 5,000)20 109. 5 TC(EOQ) = CxQ + O x D 2 Q= 20 x 500 + 500 x 5,0002500= 5,000 + 5,000= 10,000 110. 7 2. = 80,000 / 4,000 = 20 4. = 360 = 18 20 ( 5) 111. Lead Time 7 3 = 18 - 3 = 15 15 112. (Reorder Point) 7 2. 80,000 / 360 = 222 4000/18 = 222 5 Lead time 3 3 113. 114. () 2 2. 3. 7.35. = 80,000 / 10,000 = 8 100 x 8 = 800 2. 115. () = 20,000 + 3,200 = 23,200 = 23,200 - 16,000 = 7,200 800 7,200 116. () 7.4 80,000 x 2 =160,000 TC(10,000) = 4 x 10,000+ 400 x 80,0002 10,000 = 20,000 + 3,200 117. () 160,000 7,200 10,000 118. (Safety Stock) EOQ 5. 6. 119. 7 120. 121. 500,000 2 4. - 3,000,000 @ i=9.5% - PAR 100 20,000 @ 8% 122. 1. - 3,000,000 @ i=9.5% - PAR 100 20,000 @ 8% 123. EPS = (1- ) 124. (EPS) EPS = 125. .371 (9%)10 (6%)(6%)5 (Par@10)15 10 126. 20 2. (8%) 6 , (5%) 8 ( 20 )4. (8%) 50% ( 20 ) 12 30% 127. 3. (900,000)4. (300000)5. 1500,000 128. 1(8%) = 6,000,000 x 8% = 480,000 (8%) (5%) = 8,000,000x5% =400,000 = 6,000,000/20 = 300,000 129. 2(8%) (50%) = 10,000,000 x 8% = 800,000 (8%) = 10,000,000/20 = 500,000 130. 1 = 900,000 + 480,000 = 1,380,000 = 300,000 + 400,000 = 700,000 = 1,500,000 + 300,000 = 1,800,000 131. 2 = 900,000 + 800,000 = 1,700,000 = 300,000 + 0 = 300,000 = 1,500,000 + 500,000 =2,000,000 132. EPS 1 (1,200,000 1,380,000 3,186,000 700,000) 1,800,000 = 3.74 2 (1,200,000 1,700,000 3,090,000 300,000) 2,000,000 = 3.46 133. (9%)10 (8%) 6 (6%)5 (5%)8 (Par @ 10 ) 15 (Par @ 20 ) 6 10 60 134. 8 135. 136. 3 4. 5. 6. 137. = + + S =TVC + TFC + NIS =TVC + TFC + 0 P(Q) = VC(Q) + TFC Q PQ 138. .375 P = 25 VC = 15 TFC = 30,00025 (Q) = 15Q + 30,00025Q 15Q=30,00010Q =30,000Q* = 3,000 PQ*= 25*3,000 = 75,000 139. S BEP TCTVCTFC Q 140. BEP(Q) =TFC UCMUCM = P VCBEP (SALES) = P x BEP(Q)BEP(Q*) = TFC + UCM = PQ (TFC + TVC) VC(Q) 141. 9 -10 142. 11-12 143. 144. 100 100 TodayFuture 145. (Time Line)0 1234 146. 100 (Compounding)Today Future? 100 (Discounting) Today Future? 147. (Future Value) 148. (Future Value) 100 6% 1 1 PV = -100 FV = 106 0 1Calculator Solution: P/Y = 1I=6 N=1 PV = -100 FV = 106 149. (Future Value) 100 6 % 1 1 PV = -100FV = 1060 1Mathematical Solution:FV = PV (FVIF i, n )FV = 100 (FVIF .06, 1 ) (use FVIF table, or)FV = PV (1 + i)nFV = 100 (1.06)1 = $106 150. (Future Value) 100 6% 1 5 PV = -100 FV =133.82 0 1Calculator Solution: P/Y = 1I=6 N=5 PV = -100 FV = 133.82 151. (Future Value) 100 6 % 1 1 PV = -100FV = 133.820 1Mathematical Solution:FV = PV (FVIF i, n )FV = 100 (FVIF .06, 5 ) (use FVIF table, or)FV = PV (1 + i)nFV = 100 (1.06)5 = $133.82 152. (Future Value) (Interest Table) FV = PV (FVIF i, n )= 100 (FVIF i = 6%, n = 5 )= 100 (1.3382)= 133.82 153. (Future Value) FVIF3. FVIF 1 4. FV IF 5. FVIF 154. (Present Value) 100 1 6 % 1 PV = -94.34FV =100 0 1Calculator Solution: P/Y = 1I=6 N=1 FV = 100 PV = -94.34 155. (Present Value) 100 1 6 % 1 PV = -94.34FV =1000 1Mathematical Solution:PV = FV (PVIF i, n )PV = 100 (PVIF .06, 1 ) (use PVIF table, or)PV = FV / (1 + i)nPV = 100 / (1.06)1 = 94.34 156. (Present Value) 100 5 6 % 1 PV = -74.73FV =100 0 1Calculator Solution: P/Y = 1I=6 N=5 FV = 100 PV = -74.73 157. (Present Value) 100 5 6 % 1 PV = -74.73FV =1000 1Mathematical Solution:PV = FV (PVIF i, n )PV = 100 (PVIF .06, 5 ) (use PVIF table, or)PV = FV / (1 + i)nPV = 100 / (1.06)5 = 74.73 158. () Annuities 2 159. (Future Value of an Annuity) 160. (Future Value of an Annuity) 1000 8 % 3 01 23 1000 1000 1000Calculator Solution:P/Y = 1 I=8N=3A = -1,000FV = $3,246.40 161. (Future Value of an Annuity) 1000 8 % 3 Mathematical Solution:FV = A (FVIFA i, n )FV = 1,000 (FVIFA .08, 3 ) (use FVIFA table, or)FV =A(1 + i)n - 1i 3 162. Future value of an uneven cash flow stream 9-4 . 228 0 1 2 3 4 5 6100000 200000 200000 200000 0 300000FV 1 = 100,000 (1+0.08)5 = 100,000 (FVIF, i=8% n=5) = 146,930 163. Future value of an uneven cash flow streamFV 2 = 200,000 (1+0.08)4 = 200,000 (FVIF, i=8% n=4) = 272,100FV 3 = 200,000 (1+0.08)3 = 200,000 (FVIF, i=8% n=3) = 275,940FV 4 = 200,000 (1+0.08)2 = 200,000 (FVIF, i=8% n=2) = 233,280FV5 = 0 164. Future value of an uneven cash flow streamFV 6 = 300,000 (1+0.08)0 = 300,000 (FVIF, i=8% n=03) = 300,000 6= 146,930 + 272,100 + 251,940 +233,280 + 0 + 300000 = 1,204,250 165. Future value of an uneven cash flow stream FVIFA 2 3 4 200000 FVIFA 8% n= 3 649,280 6 FVIFA 8% n= 2 757,320 6= 146,930 + 757,320 + 0 + 300,000 166. Present value of an Annuity 1,000 3 8 % 0 12 3 1000 10001000 Calculator Solution:P/Y = 1 I=8 N=3A = -1,000PV = $2,577.10 167. Present value of an Annuity 1,000 3 8 % Mathematical Solution:PV = A (PVIFA i, n )PV = 1,000 (PVIFA .08, 3 ) (use PVIFA table, or) 1PV = A 1- (1 + i)n i1PV = 10001 - (1.08 )3= $2,577.10.08 168. Present value of an uneven cash flow stream 169. Present value of an uneven cash flowstream 9-6 1300,000 2500,000 3500,000 4500,000 50 6100,000 170. Present value of an uneven cash flowstream 12% PV = FVn [1/(1+i)n ]PV = 300,000 [ 1/(1+0.12)1] = 300,000(0.8929)PV = 500,000 [ 1/(1+0.12)2] = 500,000(0.7972) 171. Present value of an uneven cash flow streamPV = 500,000 [ 1/(1+0.12)3] = 500,000(0.7118)PV = 500,000 [ 1/(1+0.12)4] = 500,000(0.6355)PV = 0PV = 100,000 [ 1/(1+0.12)6] = 100,000(0.0.5066) = 267,870 + 398,600 + 355,900 + 317,750 +50,660 = 1,390,780 172. Present value of an uneven cash flowstream PVIFA 235 2-4 500000 1 i = 1 2%, n= 3 1,200,900 PVIF i= 0 , n = 1 1,072,283 173. FVIF I = 8.75% 5 i=8 n=5 FVIF =1.4693i=9 n=5 FVIF =1.5386 i=1 n=5FVIF =0.0693 i=0.75 n=5FVIF =0.0693*0.75i=8.75 n=5FVIF =1.4693+0.0519 =1.5213 174. FVIF = [(i-iL) / (iH-iL)] (IFH-IFL) + IFLi= iL = iH = IFH = FVIF iHIFL = FVIF iL 175. FVIF = [8.75-8 / 9-8] (1.5386- 1.4693) + 1.4693 = (0.75) (0.0693) + 1.4693 = 0.0519 + 1.4693FVIF, i= 8.25 n= 5 = 1.5213 176. 13 177. 178. 3 3. Maturity Approach4. Aggressive Approach5. Conservative Approach 179. Maturity Approach 180. Maturity Approach 181. Aggressive Approach 182. Aggressive Approach 1 2 183. Conservative Approach 184. Conservative Approach 1 2 3 1 2 185. 186. 2. 3. 4. 5. 187. 2. 4. 188. 189. 2 (Internal Sources of Funds) (External Sources of Funds) 190. (Financial Markets) 2 191. (Financial Markets)2. (Money Market) 1 . . 192. (Financial Markets)2. (Capital Market) 1 2 193. 2 2. Initial Public Offerings ( IPO)3. Seasons New Issues 2 6. Public Offering (P/O)7. Private Placement (P/P) 194. 1. (Underwriting)2. (Distributing)3. (Advising) 195. 2. (Underwriters spread)3. (Issuing costs) 196. 14-15 197. 198. (CAPITAL BUDGETING) 1 199. 2 1. UNDISCOUNTEDEVALUATION METHOD 1.1 Average Rate of Return: ARRARR = (%) 1.ARR > 2.ARR< 200. 1.2 Payback Period : PB1.2.1 PB = () 1.2.1 1. PB < 2. PB > 201. 2. Discounted Cash Flow Method 2.1Discounted Payback Period : DPB 2.2Net Present Value : NPV NPV = ( ) 202. 1. NPV 2. NPV i,n2.2.1 i,nPVA = A(PVIFA )2.2.2 PV = FV (PVIF ) 203. 2.3 Profitability Index : PIPI = () 1. PI > 1 2. PI < 1 204. 2.4 Internal Rate Of Return : IRRIRR 1. IRR > 2. IRR < 205. 2.5 Modified Internal Rate OfReturn : MIRRMIRR 206. 2 7 A () B () 1 3 2 2 3 4 3 3 3 2 ( 10% ) . PB . PI . DPB. IRR .NPV. MIRR 207. PB. A ( ) = 2.33 3 = 7. B ()7 1 222 463 39 3 3 12 7-6 208. DPB . A ( ) = TA1 PVIF(10%) 1.3.90912.727372.72732.3 .82642.47925.20653.3 .7513 2.25397.4604 2.2539 12 7-5.2065 = 1.7935 = 12x 1.7935 209. DPB . B ( )= TA 1 PVIF(10%) 127.90911.81821.818224 .8264 3.30565.123833.7513 2.25392.25397.3777 2.2539 B 12 7-5.1238 = 1.8762 210. NPV . A () = TA 2i, PVA = A(PVIFA )n = 3(2.4869) PVA = 7.4607 = 7.0000 NPV= 0.4607 PI ( ) . A 7.0000 7.4607= 1.07 PI = 1. NPV = 211. NPV . B ( ) = TA 1 PVIF (10%)12 .90911.818224 .8264 3.305633 .75132.25397.3777 7.0000 7.0000NPV0.3777 PI () . BPI = 7.3777= 1.05 212. IRR ( ) = TA 2 3 Step. AStep1 PVIFA = 7 = 2.33333 Step2 PVIFA i 12% n 3 2.4018 PVIFA i 14% n 3 2.3216 2%0.0802 Step 3 I = 12% 0.0802PVIFA 0.0802 i 2% 213. IRR ( )Step1= PVIFA () = Step2= Step1 TA2 (n= ) i () 1 (Step3= ) 214. IRR ()= TA 1. B(i = Traialand Error )Step 1 PVIF(12%) PVIF(14%) 12 .89291.7858.87721.7544 2 4 .79723.1888.76953.0780 3 3 .71182.1354.67502.0250 215. Step 2 PVIF i 12% 7.1100 7 PVIF i 14% 6.8574 2% 0.2526Step 3 i =12%PVIF 0.2526 i 2% PVIF 0.2526 7.11 - 7.00 i2 X.11 = 0.87% 216. PVIF = 10% PVIF = 15%2 X .9091 = 1.8182 2 X .8696=4 X .8264 = 3.3056 1.73923 X .7513 = 2.2539 4 X .7561=PVIF= 7.37773.02443 X .6575 = 1.9725PVIF= 6.7361 217. MIRRA () 3 Stepi Step1. FVA = A(FVIFA n n)TA4 () Step2. PV (TA ) = 1i=1) n Step3. Step2 218. i = 10%Step1. FVA3 = 3(FVIFAn = 3 )TA4= 3 x 3.3100 FVA3 = 9.93 9.93 n = 3 Step2. PV = 7.0 = 0.7049 ()i = 1 12% = 0.7118 = 0.7049 PV TA1 14% = 0.67502% = 0.0368 2% 0.0368 i 2%0.036= (.7118-.7041 = 0.0069 = 2x .0069 = 0.375%)A MIRR = 12.37% 219. . MIRR () B 3 Step 3Step 1. ( TA )n Step 2. PV = Step 3. Step 2 Step 1 FVIF(10%) 312 1.2100n=2 2.4224 1.100 n = 1 4.40 220. Step 2 PV = 3 PV = 7.0 = 0.71289.82TA i = 1 1Step 3 0.7128n = 3 i = 10% = .7513n = 3 i = 12 % = .7118i = 2% =0.0395 i = 10 % :- PV 0.0395 i 2% PV = (.7513 - .7128 = 0.0385) = 2 x0.0385 = 11.95 %0.0395 B MIRR = 11.95 % 221. Check list A = B = A = B= / / 1.PB2.33 2 4 M- -2.DPB9.55 M 9.99 M2 2 TA 1TA 13.NPV0.4607 0.3777 TA 2TA 14. PI1.07 1.05 TA 2TA 15. IRR13.71% 12.87% TA 2TA 16.MIRR12.37% 1.95%TA4 1 /TATA 3 1 /TA.. 222. 16 223. 224. Dividend payment4 (Cash dividend) (Stock dividend)(Non-cash dividend) 225. Cash dividend paymentprocedures 9 2002 2 8 4 2003 (Declaration date) 226. Cash dividend paymentprocedures ABC 4 31 2548 25 2548 20 2548 227. Dividend policy Stable/ Predictive dividend policy Constant dividend pay-out ratio policy Low regular dividend and extra policy 228. Dividend policy factors Laws Stability of Liquidityearnings Need to repay Access to thedebt capital market Debt contracts Control Rate of Tax position ofexpansionstockholder Profit rate 229. Laws 1200-1205 1201 1202 230. Laws 1203 1204