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Finance: Acquiring & using funds cc licensed ( BY NC ND ) flickr photo by photog63: http://flic.kr/p/GzRs8

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Quiz • Closed book/closed notes • Phones & computers put away • You may collaborate with your team • You are responsible for the answers on your quiz • You do not have to choose the same answers as your team

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cc licensed ( BY NC ND ) flickr photo by tomfs: http://flic.kr/p/8zGd2J

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cc licensed ( BY NC ND ) flickr photo by Eric E Johnson: http://flic.kr/p/5TCmBJ

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cc licensed ( BY NC ND ) flickr photo by wallyg: http://flic.kr/p/azCBRS

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Pay for it?

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Cash?

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Loan! (debt)

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cc licensed ( BY NC SD ) flickr photo by axoplasm: http://flic.kr/p/6wWbD

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cc licensed ( BY SD ) flickr photo by salisasaki: http://flic.kr/p/6Gx11F

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cc licensed ( BY NC SD ) flickr photo by drewish: http://flic.kr/p/2UczJ

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Pay for it?

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Loan?

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Cash! (equity)

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Risk: probability of bad outcome creative commons licensed (BY-ND) flickr photo by GavinLi: https://flic.kr/p/7C7QQV

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risk-reward tradeoff • higher return? • higher risk • lower return? • lower risk

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Remember accounting? organizing, analyzing, and reporting financial information ratio analysis

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Liquidity Ratios  current ratio:  current assets current liabilities  acid-test (quick) ratio:  cash + marketable securities + receivables current liabilities

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Debt (Leverage) debt to OE: total liabilities owners’ equity describes capital structure

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Capital structure • Balance between debt and equity • Generally similar within industry • Not always! –BUD: 1.084 –MolsonCoors: .4171 –SABMiller: .5549 –Boston Beer: .0011 • ????

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Profitability EPS: net income after taxes number of shares outstanding return on sales: net income net sales return on equity: net income after tax owners’ equity

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creative commons licensed (BY) flickr photo by StockMonkeys.com: https://flic.kr/p/dxpt8u

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leverage creative commons licensed (BY-NC-ND) flickr photo by Martin Whitmore: https://flic.kr/p/5LVn8X

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Leverage, equal capital Eck-Witty Corp. • Equity: $1,000,000 • Debt: $0 • Earnings: $120,000 • ROE: 12% Oze-Mor, Inc. • Equity: $200,000 • Debt: $800,000 • Earnings: $60,000 • ROE: 30%

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leverage, equal investment Eck-Witty Corp. • Equity: $1,000,000 • Debt: $0 • EBIT: $160,000 • Taxes: $40,000 • Earnings: $120,000 • ROE: 12% Oze-Mor, Inc. • Equity: $1,000,000 • Debt: $4,000,000 • EBIT: $800,000 • Interest: $400,000 • Taxes: $100,000 • Earnings: $300,000 • ROE: 30%

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leverage, equal investment Eck-Witty Corp. • Equity: $1,000,000 • Debt: $0 • EBIT: $80,000 • Taxes: $20,000 • Earnings: $60,000 • ROE: 6% Oze-Mor, Inc. • Equity: $1,000,000 • Debt: $4,000,000 • EBIT: $400,000 • Interest: $400,000 • Taxes: $0 • Earnings: $0 • ROE: 0%

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current assets creative commons licensed (BY-NC-ND) flickr photo by County of Dare: https://flic.kr/p/nMo3ui

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accounts receivable?

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creative commons licensed (BY-SA) flickr photo by 401(K) 2013: https://flic.kr/p/biaNt6

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creative commons licensed (BY) flickr photo by Inha Leex Hale: https://flic.kr/p/73x1km

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Time Value of Money • Dollar today vs dollar tomorrow? creative commons licensed (BY-NC-SA) flickr photo by Cathérine: https://flic.kr/p/4wjsVc