Finance and Investing
Abstract Capital structure refers to the way a firm finances or rather services its chattels. This can take several forms some of which include debt financing, equity financing or an amalgamation of both also referred to as hybrid securities. Marketable securities include bonds, notes and stocks. Therefore capital structure is a constitution of a company’s liabilities. The forms of capital structures mentioned above can also be referred to as capital structure approaches. Introduction In this summary paper I will recommend a capital structure approach that maximizes shareholders returns on equity. I will also proceed to discuss the capital budget areas that raise concern in relation to Net Present Value and Internal Rate if Return. I will also proceed to discuss how working can be properly obtained and managed to correspond with the plans of expansion to Canada. I will also weigh in the options of merging and acquisition of Canadian Bikes, Inc. facility. Definitions The main objective of a firm is to maximize its returns. This notion forms the basis of my summary report. Definitions Capital budgeting- Basically refers to the method in which a firm establishes which investment opportunities need to be given priority. Capital budgeting looks at an investment‘s timeframe and assesses whether the income it amerced meets an adequate goal yardstick. Can also be referred to as Investment appraisal. Internal rate of return- In summary it is a form of discounting that makes the Net Present Values of a future investment equal Zero. A project with a high internal rate of return should be given considerations over the others if all factors are kept constant in all the investments. The IRR is also referred to as the Economic rate of Return ERR. Net present value- This value gives the distinction between the current value of cash in and the current value of cash out. This...
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Foreign Direct Investment (FDI) A foreign investment (FDI) is a company controlled through ownership by a foreign company of foreign individuals. Control must accompany the investment; otherwise it is a portfolio investment. Companies want to control their foreign operations so that these operations will help achieve their global objectives. Investors who control an organization are more willing to transfer technology and other competitive assets. The idea of denying rivals access to resources is called the appropriability theory. Governmental authorities worry that this control will lead to decisions contrary to their countries' best interests. Direct investments usually, but not always, involve some capital movement. There are two ways companies can invest in a foreign country. They can either acquire an interest in an existing operation or construct new facilities. Buy: Depends on which companies are available for purchase; difficulty to transfer resources or acquire resources for a new facility; the goodwill and brand identification; easier access to local capital; market does not justify added capacity; immediate cash flow. Build: Depends on difficulty to find a company to buy; little or no competition; local governments prevent acquisition; acquisition less likely to succeed (inefficient); local financing easier to obtain for building. Whether a company first transfers capital or some other asset to acquire a foreign direct investment, the asset is a type of production factor. Production factors: capital, technology, trademarks, managers, raw material, .... If trade could not occur and production factors could not move internationally, a country would have to either forgo consuming certain goods or produce them differently, which in either case would usually result in decreased worldwide output and higher prices. In some cases, the inability to use foreign production factors may stimulate efficient methods of substitution. If finished goods and production factors were both free to move internationally, the comparative costs of transferring goods and factors would determine the location...
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1.1 Introduction Financial accounting statements are summaries of monetary data about an enterprise and are used in an attempt to help make informed decisions in the present and future. Financial statements portray the effects of transactions and other events by grouping them into broad classes (or elements) according to their economic characteristics. The three basic financial statements are the balance sheet, the income statement and the cash flow statement. There are many different entities that utilise financial statements. Financial statements may be drawn up for private individuals, non-profit organisations, manufacturers and service industries. Three major groups that take advantage of the usefulness of financial statements are large corporations, investors and the government. Financial statements play a decisive role in each of these entities financial decisions. Corporations decide how much credit to extend to customers and how much should be distributed to investors in dividends. Investors use a company's financial statements to decide whether or not it would prove advantageous to invest their money, and if so, how much. The government uses financial statements to determine how much an entity is required to pay in taxes. Each decision as stated above does not always require the same financial statement, however. A balance sheet would be used in the decision-making process for assessing a competing firm and determining a customer's credit limit. It provides the user with data about available resources as well as the claims to those resources. An income statement would prove useful in determining credit extension to customers, distribution of dividends, taxes and investment opportunities. It provides the user with data about the profitability of the enterprise detailing sources of revenue and the expenses which reduce profit. A cash flow statement would be a useful tool in each instance because it gives a brief description of how much cash is coming in, going out and...
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Summary This paper aims at determining the optimum viable solution of an investment on a suburban coastal shipping system in the area of Athens. More specifically it refers to the development of a sea transport system, alternative to the existing road one, that would connect Piraeus with the southern suburban coastal area of Athens. The best viable solution of such an undertaking is considered to be the one, which under the existing constraints maximises the total profit that derives from this investment. The variables used for the formation of the constraints are the number of vessels used, the routing and the price of the services. The article after presenting the methodology of the market analysis, focuses on the financing alternatives of the project and their impact on its economic efficiency and concludes with the best viable scenarios and optimum solution. 1. Introduction The paper's main objective is to determine the optimum solution of an investment undertaking that includes an alternative transportation system, that is a suburban coastal transport system in the south region of Athens. Such a system is believed that can offer a possible solution to the transport problems of congestion, which characterise the existing overloaded road network of Athens. Suburban coastal shipping has a special character. First there are not many examples of cities that use an analogous transport system. Secondly, the main competitor of sea transport is road transport or fixed track systems (train, tram). It should be mentioned that the current transportation system despite its deficiencies in terms of time, cost as well as externalities remains a strong travel alternative and consequently a constraint for the development of the proposed seaborne transport. This is due to the several advantages it offers to its users like door to door services, flexibility and speed. City of Athens disposes a road system as the main one satisfying the transport demand to and from the suburban areas. The best economic solution for an investment of this kind...
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What is 'macroeconomics'? You may have already studied microeconomics, which looks at supply, demand and prices for individual goods. Macroeconomics looks at the bigger picture and involves the study of the economy as a whole. National income Let us start by looking at a simple example - a 'two sector' economy made up of households (consumers) and firms (producers) -and use this to develop the idea of national income. To start with we will ignore the impact of government policy and overseas sectors. Households ultimately own the factors of production, e.g., labour, materials and capital, and supply these factors to firms who use them to produce goods and services. In return households earn rewards for supplying the firms with the factors of production e.g., wages and interest on capital. These rewards are in turn used to buy the goods that the firms have produced. This process is known as a circular flow- see Figure 1. Figure 1: Simple circular flow From Figure 1 we can see that there are three ways of measuring the amount of economic activity in the economy. These are: (a)National product/output = the flow counted at this point represents the amount received by firms for their total production. (b) National income = the flow counted at this point represents the total income received in return for factors of production. (c) National expenditure = the flow counted at this point represents the total expenditure by households on goods and services. If it is assumed that all income is spent, then whichever method is used the same measure of economic activity must be obtained. Let's look at a numerical illustration. Illustration Assume there are two producers - a lumberjack and a carpenter. The carpenter makes chairs each of which needs £5 worth of wood and which he sells for £20. Total annual sales are 10,000 chairs. The income and expenditure accounts for the lumberjack and carpenter are: Carpenter£000Lumberjack£000 Purchases (wood)50 Wages40Wages10 Interest20Interest5 Rent50Rent20 Profit40Profit15 Sales200Sales50 'National Product' = 200 This is the total value of the production (i.e., chairs) 'National Income' = 40 + 20 + 50 + 40 + 10 + 5...
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Real appreciation/depreciation of the Irish Punt, US Dollar, French Franc, Japanese Yen and Deutsche Mark The real exchange rate is the nominal exchange rate adjusted for changes in the relative purchasing power of each currency (Shapiro, 1999). This concept can be linked to the theory of Purchasing Power Parity (PPP), first introduced by Gustav Cassel in 1918 and defined as: e (home)/e (foreign) = p (home)/p (foreign) (formula 1) e = spot rate p = Inflation In absolute terms, it states that currencies should have the same purchasing power all over the world. Transportation costs, tariffs, quotas, restrictions and product differentiation are ignored though. The relative version of PPP states that the exchange rate between home and foreign currency will adjust to reflect changes in price levels of the two countries. So, if inflation in the US is 5% and 3% in the UK, then sterling must rise by 2% in order to equalise the dollar price of goods in the two countries. Vice versa, when calculating real appreciation or depreciation, it is necessary to adjust for inflation rates. Therefore, real appreciation or depreciation of a currency is that adjusted for inflation and is calculated using the following formula: e(real) = e(nominal)*[p(foreign)/p(home)] (formula 2) Similarly, the real interest rate must be adjusted to reflect inflation. The real interest rate, according to the Fisher effect, measures the exchange rate between current and future purchasing power. Together with (expected) inflation, it represents the nominal rate. This can be approximated by the equation r = a + i, where r is the nominal rate, i is the rate of inflation, and a is the real rate of interest. Based on these calculations, it clearly emerges that the US$ is overvalued by about 36% since the exchange rate differential is greater than the relative inflation between the USA and Ireland. We can thus assume that...
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RURAL FINANCE FOR RURAL WOMEN AN OVERVIEW Introduction Poverty hits hardest at the female half of humankind. If woman living in a rural area of a developing country, they are likely to be poorer than a man, more vulnerable, own no land, be less educated and in poorer health. And you are unlikely to live as long. Struggling to combine a 'double day' of low-paid work with care for the home, rural women often have to cope with frequent pregnancies and child mortality. For women, perhaps the cruelest reality of all is that they have less chance than men to escape from poverty. A rural woman is likely to have little or no say in the way the family spends its income. Discrimination in education is the start of the vicious spiral of poverty. A girl may be deprived of schooling and literacy for no other reason than that she is female. Seventy per cent of poor women in India cannot read or write. Illiteracy often excludes people from written knowledge and decision-making. Some rural women have been affected by trade liberalization They are unable to participate in the marketing of export crops as they lack land rights and access to essential farm inputs. On the other hand, some women have gained by securing jobs in new export activities. Investment in rural women pays off. •Indian population is 48.1% women and 51.9% men • Female illiteracy is 62% whereas the male illiteracy rate is 34% • The labour force participation rate of women is 22.7%, less than half of the men's rate of 51.6% • In rural India, agriculture and allied industrial sectors employ as much as 89.5% of the total female labour • Women have extensive work loads with dual responsibility for farm and household production • Women's work is getting harder and more time-consuming due to...
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This is a overview of the The Asian Financial Crisis 1997 and how it consequentially effected the Asian Market and its surrounding area. The work is done in Spanish. La crisis financiero Asiatic de 1997 - y las consecuencias en Asia y a otra parte Introducción La Crisis Financiera Asiática era una crisis financiera que comenzó en julio de 1997 en Tailandia y afectadas las monedas, mercado de valores, y precios de activo en varios países asiáticos, muchas consideraba East Asian Tigers (tigres asiáticos del este). También se refiere comúnmente como la crisis asiática del este; de la crisis moneda o localmente como la crisis del IMF/FMI (International Monetary Fund - Fondo Monetario Internacional) aunque el último es algo polémico. Indonesia, Sur del Corea y Tailandia eran los países más afectados por la crisis. Hong Kong, Malasia, Laos y las Filipinas, tierra firme China, India, Taiwán, y Singapur eran relativamente inafectados. Japón no fue afectado mucho por esta crisis sino pasaba con sus propias dificultades económicas a largo plazo. La crisis financiera asiática de 1997-99 vino como choque a la profesión de economía y a la comunidad internacional de la política. Pocos dentro o fuera de la región habían previsto la profundidad de los problemas económicos que siguieron, y un cuerpo amplio de escribir rápidamente emergió para ofrecer el poste-mortem competente. Mucho de este análisis, sin embargo, fue limitado a los factores puramente económicos. Las dimensiones políticas de la crisis fueron no hechas caso en gran parte. Todavía, todo los factores políticos ser crucial a entender el curso de la crisis así como las maneras de las cuales los gobiernos respondieron a ella. Aunque estuvo llamado la crisis "al este asiática" porque originó en Asia del este, sus efectos ondulados a través del globo y causó una crisis financiera global, con los efectos principales...
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The Role Of Organizational Culture In Mergers & Acquisitions The articles stressed the important role culture plays in mergers and acquisitions (m&a). Several factors regarding the cultural impact on mergers and acquisitions were evident in the information gathered from the Internet. These factors such as reward systems, operating and decision making styles, organization structure, and company values should be pre-assessed and considered when determining the viability of a m&a. Leaders of today's global markets should look past financial and strategic synergies and focus more on the cultural impact of changing two previously independent organizations into one integrated solution. There were four main areas of importance regarding organizational culture and mergers and acquisitions: Conduct a cultural self-assessment of potential organizations involved. Determine cultural objectives through due diligence. Integrate the "right" amounts of diversity from both organizations. Actively manage the post-deal culture. At the start of a merger, key cultural characteristics should be assessed in both organizations to choose to 1) keep the two cultures independent (coexist), 2) have one culture dominate and absorb the other, or 3) blend the cultures with surviving aspects of each remaining. The preferred method noted would be to blend the cultures together resulting in a more effective culture than the sum of the two parts. Unfortunately, in many mergers, culture combination and chemistry are mere after-thoughts. Subsequently, the initial objective to acquire the talent and benefits inherent in the "human resource" aspect of a company are lost after integration. Because of the probable culture clashes, employees will have a tendency to fiercely hold on to their cultural norms. Human nature causes clashes to erupt out of noting and evaluating the cultural differences based on "my way" is the superior way and then attacking the other side by identifying inefficiencies. However, a fair amount of cultural debate brings positive outcomes. Cultural due diligence does...
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