d) minimize operational costs and maximize firm efficiency. e) maintain steady growth in both sales and net earnings. 4. Accounting concepts for a firm to create value it must: a) have a greater cash inflow from its stockholders than its outflow to them. b) create more cash flow than it uses.
* Net profit percentage – This calculation takes the idea of profitability one stage further by actually considering the profit as a percentage of turnover after all the other expenses have been taken out. Looks something like this: Net profit x100 = net profit percentage Turnover * Return of capital employed – This calculation is worked out by considering the net profit as a percentage of the capital employed by that business. The reason this ratio is useful because it shows the amount of money an investor is receiving back on their capital as a percentage. This means they can
Velocity is a measure of how often money “turns over” in a period. It is equal to nominal GDP divided by the nominal money supply. The quantity theory of money assumes that velocity is constant, which implies that real money demand is proportional to real income and is unaffected by the real interest rate. 7. Equilibrium in the asset market is described by the condition that real money supply equals real money demand because when supply equals demand for money, demand must also equal supply for nonmonetary assets.
It helps us to understand the relationship between the usage of money and the value of returns it provides from a particular venture or avenue based on the time it would take for providing the return and the future value of the return. Opportunity cost is economic decisions based on a limited resources i.e time or money. Opportunity cost is defined as the next best choice available for a person. Opportunity costs are not restricted to monetary costs only. Trade-off is the form of either buying less or a lesser quality item in order to purchase more or a greater quality item.
1. What are the three characteristics common to money market securities? a. Money market instruments are generally sold in large denominations. Most money market participants want or need to borrow large amounts of cash, so that transactions costs are low relative to the interest paid.
An example of a long-term liability would be that of a bond and a mortgage. (b) What is a bond? Bonds are an obligation repays a principal amount at a future date, but pay interest on an annual basis. 8. Contrast these types of bonds: (a) Secured and unsecured.
Problems: Easy Problems 1-6 • 5-1 Bond Valuation with Annual payments Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? 80*7.1607+1000*.3555 = $928 • 5-2 Yield to Maturity for Annual payments Wilson Wonders’s bonds have 12 years remaining to maturity.
• They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year. • At maturity of the bond, the investor receives the market price of the bond. • They are obligations from the investor to the corporation. • Their interest rate always varies with the Consumer Price Index 6. Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.
Common stock usually entitles the owner aka, shareholders the right to vote and collect dividends. Preferred stockholders do not vote, however, they claim a higher yield on assets and earnings than the common shares. Bond: A financial instrument issued by corporations, federal and local governments issued for the purpose of raising capital; a debt security that promises repayment with interest. Capital; the simplistic definition is money. Capital is used to generate income, capital, or money is used to make investments that will generate more income.
True b. False 6(9-7) Free cash flows and valuation F G Answer: a EASY [vi]. Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations. a. True b.