Lecture1 PDF
Lecture1 PDF
The nancial manager does all of this with the goal of maximizing the value of the rm.
Limited
partners
Have
limited
liability
and
their
ownership
interest
is
transferable
They
have
no
management
authority
Lets say your friend, a fan of the hugely influential band The Pixies, wants to make a documentary about the group to submit to Sundance Film Festival She needs to borrow $28,000 from you, but promises to pay you back $29,000 in one year Given the interest rate offered by ING is 2.5% for a year, should you lend your friend the money? (assume the investment is guaranteed or risk free)
Analyze the impact of potenSal business plans Plan for future funding needs
A
forecasSng
method
that
assumes
that
balance
sheet
and
income
statement
items
grow
proporSonately
with
sales.
Percent
of
sales
remains
constant
in
future
periods.
Forecasts
of
balance
sheet
and
income
statement
items
are
made
as
a
percent
of
the
expected
sales
gure
for
that
period.
ForecasSng Example
Brej McKenzie decides to give up the dream and start working for Corporate America as a sign holder. Brej is tasked to come up with a Pro-Forma forecast of the income statement and balance sheet.
Murray decides to help out Brej and forecasts a 12% growth in sales from 2011 to 2012. For now, assume interest expense remains the same as 2011. The retenSon raSo (the percentage of net income that is re-invested in the company) is currently 10%
If debt is chosen, it will change the interest assumpSon on the pro forma income statement.
Changing
AssumpSons
Problem
Jemaine
Suggests
that
Brej
increase
the
retenSon
raSo
so
they
can
avoid
pawning
o
some
of
their
stu
to
make
up
the
dierence.
Changing AssumpSons
! Net Income " =% & (1 payout ratio ) (Eq. 18.5) ' Beginning Equity ( = ROE retention rate
Problem:
Your
rm
has
$100
million
in
equity
and
$40
million
in
debt
and
forecasts
$18
million
in
net
income
for
the
year.
It
currently
pays
dividends
equal
to
25%
of
its
net
income.
You
are
analyzing
a
potenSal
change
in
payout
policythe
eliminaSon
of
the
dividend.
How
would
this
change
aect
your
internal
and
sustainable
growth
rates?
SoluSon: Plan:
Plan (contd):
Execute:
Evaluate: