BMW Australia Sold

WEEK 1 FIN 921Managerial Finance Trimester 2 -2021 FIN 921 ŒDr MARIA KIM 1INTRODUCTION TO MANAGERIAL FINANCE Dr.MARIA KIM Faculty of Business and Law Academic Consultation: Zoom online consultation on Moodle Tuesday 1:30 Œ3:30pm Thursday 3:30 Œ5:30pm Email: [email protected] FIN 921 ŒDr MARIA KIM 2Subject Coordinator and Lecturer This lecture covers FIN 921 ŒDr MARIA KIM 3Course overview: Subject outline and assessment tasks (important!!! )Introduction to Financial management (Chapter 1): Major financial management decisionsGoal of financial management (Assignment related issue )Financial markets and the corporation Understanding Financial statements and Cash flow (Chapter 2): Balance sheet and Income statement Book value vs. Market value Cash flow from the financial statements Part 1 ŒCourse Overview FIN 921Managerial Finance FIN 921 ŒDr MARIA KIM 4Course StructureFIN 921 ŒDr MARIA KIM 52 hours of Pre-recorded Lecture (available on Wednesday 10:30am) Lecture notes Student version: To be available by Monday 11am of the lecture week on MoodlesiteStudents required to download the student ve rsion of the lecture notes and complete the notes with me during the lecture. Full version: Not available 2 hours of on-campus & online zoom tutorial (fortnightly) Sydney 3:30-5:30pm & Wollongong 5:30-7:30pm on Thursdays On week 2, 4, 6, 8 and 10 Tutorial preparation List of tutorial questions provided in the Subject outline Extra questions given during the tutorial class Students required to Attempt questions before attending the tutorial Actively participate in discussion and class activities Join in the tutorial ON TIME AssessmentsFIN 921 ŒDr MARIA KIM 6Refer to Subject outline (3 assessments) 1.In-session Test (25% ) Œ100 mins Online multiple choice questions on the fiQuizfl link on Moodle site Lectures from week 1 to week 4 (Ch1, 2, 4, 5, 6, and 7) Due in Week 5 Thursday, 17 thJune from 5:30pm to 7:10pm 2.Group Report Assignment (25%) ŒLiterature review/critique Read very carefully the guidelines in the subject outline!!! Group work (2 people) Œyou need to work together as a team via email/zoom/facetimeor any other online correspondence. Detailed instruction &marking rubric will be released in Week 3 on Moodlesite. Due by 9am Monday 19 thJuly, in Week 9 3.Final exam (50%) Œ3 hours Written answer + calculation based questions + Multiple choice questions Online exam on Moodle site during the formal final exam period AssessmentsFIN 921 ŒDr MARIA KIM 7To PASS the subject: You must obtain 50% or more in overall assessments. And you must obtain 50% or more in the FINAL exam. Otherwise, you will get a Technical Fail (TF). TF: Your overall mark is greater than 50%; however your final exam mark is less than 50%. Approved Calculator ( IMPORTANT!!! )Must be non-programmable, on the list of eligible calculators: refer to the PDF document of the guidelinesfor approved calculators on MoodlesiteMust be labelled with a tamper proof label , available for students to source from Student Central (Sydney)and the UniShop(Wollongong) Subject Outline FIN 921 ŒDr MARIA KIM 8Read it CAREFULLY !!!Subject outline available from: Business subject outline system http://businessfaculty.uow.edu.au/outlines FIN921 MoodlesiteTextbook FIN 921 ŒDr MARIA KIM 9Major Textbook Essentials of Corporate Finance Ross | Trayler| Koh| Hambusch| Westerfield| Jordan 5thedition, McGraw Hill 2020 Smartbook(e-book) also available through the following link EBOOK ESSENTIALS OF CORPORATE FINANCE 5E (mheducation.com.au) https://www.mheducation.com.au/ebook- essentials-of-corporate-finance-5e- 9781760423612-ausThe four basic areas of Finance FIN 921 ŒDr MARIA KIM 10The four basic areas of Finance FIN 921 ŒDr MARIA KIM 11Financial InstitutionsCompanies that specialize in financial matters such as commercial banks, investment banks, credit unions, insurance companies and brokerage firms Potential job opportunities: client advisor, credit analyst, loan officer Investments Working with financial assets like shares, bonds, derivatives Risk vs. return and asset allocation Job opportunities: stockbroker, portfolio manager, security analyst International Finance Dealing with one of the areas of finance in an international context Need to be familiar with exchange rates and political risk FIN 921 Learning Objectives FIN 921 ŒDr MARIA KIM 12Managerial Finance/Financial Management/Corporate Finance This subject introduces the theoretical basis and analytical framework for corporate financial decision making .It is concerned with company investment decisions , financing decisions and dividend decisions, which are necessary to achieve the company™s financial objectives .Part 2 ŒIntroduction to Financial Management (Chapter 1) FIN 921 ŒDr MARIA KIM 13Our objective for this chapter We want to know the basic types of financial management decisionsand evaluate the goalof financial management.ManagerialFinance/Corporate Finance FIN 921 ŒDr MARIA KIM 14Some important questions that are answered using finance: What long-term investments should the firm take on? Where will we get the long-term (and short-term) financing to pay for the investment? How do we distribute the returns to the owners of the firm? Financial management decisionsFIN 921 ŒDr MARIA KIM 15The Investment Decision The way in which funds raised are used in productive activities What long-term investments or projects should the business take on? This process is also called _________________________.The Financing Decision Capital structure: should we use debt or equity to fund the long- term investments? Working capital management: how do we manage the day-to-day finances of the firm to continue operations? (CA, CL) The Dividend Decision How do we distribute the returns to the owners of the firm? Forms of business organisations FIN 921 ŒDr MARIA KIM 16Three major forms in Australia and New Zealand 1. Corporation : A business legally registered as an entity -owned by one or more individuals -has distinct groups of owners (shareholders) and managers -separation of ownership and management (control) -shareholders™ liability is ______________.2. Sole proprietorship : A business owned by a single individual 3. Partnership : two or more owners legally managing a business and sharing in its profits -Having unlimitedliability means that creditors can look beyond the assets of the firm to owners™ personal wealth for payment (general) -Income taxed once as personal income Goal of financial management FIN 921 ŒDr MARIA KIM 17What should be the goal of a corporation? (based on a conventional Shareholder theory )Maximisethe marketvalue of the existing owners ™ equity Maximiseprofit? Minimisecosts? Maximisesales or market share? Maintain steady earnings growth? Avoid financial distress and bankruptcy? Survive? Beat the competition? Stakeholder theory? (Assignment topic) Corporation has responsibility to satisfy multiple stakeholders including employees, suppliers, customers, community and environment in addition to maximizing shareholders™ value. CSR (Corporate social responsibility): Corporation is obliged to make decisions that ultimately benefit society. Goal of financial management FIN 921 ŒDr MARIA KIM 18Under Shareholder ModelThe primary goal of any (for-profit) business is to maximiseshareholders wealth. Maximisethe market value of the existing owners™ equity If the firm is publicly traded, and the financial markets are viewed to be efficient, this is often simplified to maximisingthe market value of firm™s stock (=current share price ). Why important? It reflects: Future cash flows(CF) Timingof the cash flows (t) Riskinessof the cash flows (r) QuizFIN 921 ŒDr MARIA KIM 19The goal of profit maximisation is the same as the goal of maximisation of shareholder wealth. True False Financial marketsand the firm FIN 921 ŒDr MARIA KIM 20Investment decision requires investment of funds. Financing decision requires accessto funds. Financial markets bring together the needs of suppliers (investors) and users (borrowers) of funds Primary market _______securities are issued/sold by companies to investors Secondary market __________securities are traded between investors Australian Securities Exchange (ASX) Cash flows between the firm and the financial markets FIN 921 ŒDr MARIA KIM 21Part 3 ŒFinancial Statements and Cash Flow (Chapter 2) FIN 921 ŒDr MARIA KIM 22Our objective for this chapter We want to differentiate between accounting income and cash flow and learn to determine a firm™s cash flow from its financial statements. The balance sheetFIN 921 ŒDr MARIA KIM 23Financial statement showing a firm™s accounting value at a given point in time Balance sheet identity Assets -The left-hand side Current or Fixed (non-current) assets Listed in descendingorder of ______________Ease of conversion to cash without significant loss of value Liabilities and owners™ equity ŒThe right-hand side Current (short-term) or long term liabilities Listed in ascendingorder of when due to be paid Assets = Liabilities + Shareholders™ equity The balance sheet (cont.) FIN 921 ŒDr MARIA KIM 24Net working capital = CA ŒCL Usually positive for a healthy firm Market value vs book value FIN 921 ŒDr MARIA KIM 25Market value is the price at which assets, liabilities or equity can actually be bought or sold for today .The balance sheet provides the ________value of assets, liabilities and equity. Market value and book value are often very different. Why? Which is more relevant to the decision-making process in corporate finance? The income statement FIN 921 ŒDr MARIA KIM 26The income statement measures a firm™s performance over a specified period of time (period, quarter, year). Report revenues first and then deduct any expenses for the period. End result = Net income = ‚Bottom line™ Dividends paid to shareholders Addition to retained earnings Net income = Net income after tax= Net profit after tax (NPAT) Trans-Tasman Company Income Statement FIN 921 ŒDr MARIA KIM 27Taxes FIN 921 ŒDr MARIA KIM 28One of the largest cash outflows that a firm bears Corporate tax in Australia is currently 30%.Small business in Australia with turnover under $10M pays 27.5% tax .Personal income taxes use a progressive scale leading to marginal vs. average tax rates MarginalŒthe percentage paid on the next dollar earned AverageŒthe total tax bill/taxable income Australian imputation tax system Major effect is that the double taxation of company profits (tax paid on the shareholder™s dividend) is negated. Shareholder receives a tax (franking) credit equivalent to the amount of tax paid by the company. Exercise: Marginal vsaverage tax rates FIN 921 ŒDr MARIA KIM 29Maria has a taxable income in Australia of $160,000. What is her tax bill? What is her average tax rate ? What is her marginal tax rate? Personal incometax rates (Residents) Taxable income Tax Rate 0Œ$18,200Nil $18,201 Œ$45,000 19%for each $1 over $18,200 $45,001 Œ$120,000 32.5%for each $1 over $45,000 $120,001 Œ$180,000 37%for each $1 over $120,000 $180,001and over 45%for each $1 over $180,000 Exercise: Marginal vsaverage tax rates FIN 921 ŒDr MARIA KIM 30Total $160,000$ Average tax rate Marginal tax rate Personal tax rates Taxable income Rate 0-18,200Nil 18,201-45,00019% 45,001-120,00032.5% 120,001-180,00037% 180,001and over45% Tax calculation Taxable incomeTax liability $18,200$ $26,800$ $75,000$ $40,000$ N/ACash flow FIN 921 ŒDr MARIA KIM 31The movement of cash into (cash inflow) or out of a firm (cash outflow) Financial managers are mainly interested in cash flows, NOT accounting incomeExercise Question: BMW Australia sold a X5 SUV worth $87,000 to Maria last month. BMW Australia has not received payment yet, but has paid $26,000 to its supplier. Accounting income vs. Cash flow Accounting point of viewFinancial point of view FIN 921 ŒDr MARIA KIM 32Income statement SalesExpensesNet profit Cash flow statement Cash inflow Cash outflow Net cash flow Cash flow summary FIN 921 ŒDr MARIA KIM 33