Professional Documents
Culture Documents
IIMBx – FC101x
Overview
1.1 Organizations
1. Proprietorship
Single owner, full control
Unlimited liability
Less financial resources
2. Partnership
Multiple owners
Unlimited liability
Moderate financial resources
3. Corporations
Limited liability
Financed through raising capital as risks are low
Seen as separate entity
Double taxation ( on corporation as well as dividends)
Limited control
o Firms need to invest in assets to enable them to make and sell products
1. Tangible assets : infrastructure
2. Intangible assets : Intellectual Property, Brand
3. Current assets : Short term, payment dues, cash in banks
o Assets = equity + liability
o Information asymmetry : Shareholders not having the same level of information as the managers
o Principal-agent problem
IPO
Investors : Short term, Long term
Able to sell share without undue costs
Stock Markets: Provide Liquidity, buy and sell shares, raise capital
Market Cap : Market value of all shares = (Price of share)*(Total # of shares)
Market Cap of Stock Exchange = sum of all stocks (NYSE- largest, $18T)
Average Daily Turnover(ADT) = total annual turnover of shares bought and sold in an exchange / No. of
trading days in a year
o Measure of liquidity
o Shanghai SE , largest, $87.4B
Cashflows
Excel function: Formulas>Insert>financial>FV
FV(rate , time period, payment, present value)
Discount rate
When comparing two investments : Opportunity Cost – Return on alternative investment of similar risk
No arbitrage condition
Law of one price
Cash flow = principal * rate (C=P*r)
1.5 Annuity
Annuity is constant cash flow occurring at regular intervals of time for fixed period of time
Loans, EMIs, etc
Future value of annuity(FVA)
Formula for PV of annuity
(C/r) – (C/r)*[1/(1+r)^N]