Statistics and Risk
Management
Forecast Data
Performance Objective:
After completing this lesson, the student will understand the basic concepts of
acquiring internally or externally the financing needed to further a company or
organizational goals and operations.
Approximate Time:
When taught as written, this lesson should take 4-5 days to complete.
Specific Objectives:
 The student will discuss the importance of financing within anorganization’s
structure.
 The student will understand the pros and cons of financing using bonds.
 The student will understand the pros and cons of financing using stocks.
This lesson corresponds with Unit 3 of the Statistics and Risk
Management Scope and Sequence. Copyright © Texas Education Agency, 2012. All rights reserved. 1 TEKS Correlations:
This lesson, as published, correlates to the following
TEKS for Regression. Any changes/alterations to
the activities may result in the elimination of any or
all of the TEKS listed.
130.169 (g)(6)(C)
…generate a spreadsheet to collect, collate, organize, and analyze
quantitative data;…
InterdisciplinaryTEKS:
English:
110.31 (C) (21) (B)
… organize information gathered from multiple sources to create a
variety of graphics and forms (e.g., notes, learning logs)…
110.31 (C) (22) (B)
…evaluate the relevance of information to the topic and determine the
reliability, validity, and accuracy of sources (including Internet sources)
by examining their authority and objectivity…
110.31 (C) (23) (C)
… use graphics and illustrations to help explain concepts where
appropriate…
Copyright © Texas Education Agency, 2012. All rights reserved. 2 110.31 (C) (23) (D)
… use a variety of evaluative tools (e.g., self-made
rubrics, peer reviews, teacher and expert evaluations)
to examine the quality of the research…
Math:
111.36 (C) (4) (A)
… compare theoretical and empirical probability;
111.37. (C) (3) (B)
… use probabilities to make and justify decisions about risks in everyday
life
Occupational Correlation
(O*Net - http://www.onetonline.org/)
Financial Examiner 13-2061.00
Similar Job Titles: Compliance Officer, Compliance Vice President,
Compliance Director, Community Reinvestment Act Officer (CRA Officer)
Tasks:



Investigate activities of institutions to enforce laws and regulations and to
ensure legality of transactions and operations or financial solvency.
Review and analyze new, proposed, or revised laws, regulations,
policies, and procedures to interpret their meaning and determine their
impact.
Plan, supervise, and review work of assigned subordinates.
(Soft) Skills:
Critical Thinking; Reading Comprehension; Speaking; Active Listening
Copyright © Texas Education Agency, 2012. All rights reserved. 3 Instructional Aids:
1. Display for presentation, websites for
assignments and class discussion
2. Assignment Worksheets
3. Supporting Spreadsheets
Materials Needed:
1. Printer paper
2. Assignments and website information ready to distribute to
students.
Student projects will be displayed to increase interest in Statistics
Equipment Needed:
1. Computer with presentation and Internet Access
2. Computers for Students to Conduct Research and Collect Data
for Projects
Copyright © Texas Education Agency, 2012. All rights reserved. 4 References:
Convertible Bonds and other Convertible Securities
Basic definitions and a link to a case study involving convertible bonds.
http://people.stern.nyu.edu/igiddy/convertibles.htm
Equity Financing
While most business owners are familiar with traditional financing available
through local banks, there are many other sources of capital that can meet your
needs for growth and expansion.
http://www.mbda.gov/node/432
Introduction – Sources of Finance
This article explores the different sources of internal and external financing
along with multiple other sources of financing. It provides descriptions and or
links to descriptions to the different types of internal and external sources for
further reading.
http://www.bized.co.uk/learn/accounting/financial/sources/index.htm
Copyright © Texas Education Agency, 2012. All rights reserved. 5 Teacher Preparation:
Teacher will:
1.
presentation, and
handouts.
2.
resources and websites.
3.
websites ready.
Review terms in outline,
Locate and evaluate various
Have assignments and
Learner Preparation:
It is time to wrap up what the students have learned about
statistics. You will briefly describe commercial software for
statistics with examples the student might find interesting. Then
the student will get to apply what they have learned to analyzing
data.
Introduction:
STUDENTS will watch the Unit video found here:
jukebox.esc13.net/untdeveloper/Videos/Forecast%20Data.mov
STUDENTS will take the practice test and review using the Key,
found in Common/Student Documents.
EXHIBIT:
Excitement for the lesson.
INTRODUCE:
Financially sound companies.
ASK:
Ask students if they know the difference
between stocks and bonds.
Copyright © Texas Education Agency, 2012. All rights reserved. 6 I.
Corporate Financing
A. Finance
B. The "optimal mix" of financing.
C. The capital structure that results
in maximum value
D. Initial Finance
E. Operational Cash
F. Receivables
G. Deposits
H. Inventory
I. Equipment
J. Real Estate
K. Expansion Finance
L. New Product Line
M. Buy Competitor
N. Acquire Equipment
O. Acquire Real Estate
P. Working Capital Finance
Q. Short Term Assets
R. Short Term Liabilities
S. Reorganization Finance
T. Pay Off Back-loaded Bills
U. Refinance Debt
V. Stock Buy Back
Use 11.1_Corporate
Financing.pptx
Use 11.1a_Corporate
Financing.docx
Use
11.2_Corporate
FinancingBonds.pptx
Provide Assignment sheets and discuss
and answer any questions about
assignment (In class or take homeInstructor’s Option)
II. Corporate Financing - Using Bonds
A. Why Bonds?
1. Issuing Bonds do not convey
ownership.
2. Considered Debt only.
3. Bond Sales
4. Bonds have a face value.
5. Discounts
6. Premiums
7. Interest Rates
8. Maturity Dates
9. Defaults
Copyright © Texas Education Agency, 2012. All rights reserved. 7 10. Interest payments and bond pay
off have been put in default.
11. Bond Holders get available
funds before Stock Holders do.
12. Bonds Ratings
13. Through the years, businesses
have been established who rate
the risk of bonds being issued.
14. Base Ratings the bond is
evaluated
15. Insured Ratings is when the
bond is insured and the rating
only applies to the insurer.
B. Special Bonds
1. Some special bodies and
agencies can issue Municipal
Bonds that pay interest that is
non-taxable (Federal Income
tax) to the Bond Holder
Provide Assignment sheets and discuss
and answer any questions about
assignment (In class or take homeInstructor’s Option)
III. Corporate Financing - Using Stock
A. Privately Held Corporations
1. Stock ownership is with
Owner/Operator
2. Family
3. Partners
4. Publicly Help Corporations
5. Preferred Stock
6. Dividends (Normal)
7. First to receive funds after Bond
Holders
8. Common Stock
9. Capital Gains
10. Dividends (sometimes)
11. Public Offerings
12. IPO Initial Public Offerings
13. SEO Secondary Public
Offerings
14. Re-Investment Plans
15. Common Stock
16. Capital Gains
17. Dividends (sometimes)
18. Public Offerings
Use
11.2a_Corporate
FinancingBonds.docx
Use
11.3_Corporate
FinancingStock.pptx
Copyright © Texas Education Agency, 2012. All rights reserved. 8 19. IPO Initial Public Offerings
20. SEO Secondary Public
21. Offerings
22. Re-Investment Plans
23. Instead of Dividends a Stock 24.
Holder can be issued more
shares each year based upon
their existing holdings.
24. Stock Splitting
a. If the market price of a
share of stock is too high
the company can split the
stock.
b. If you owned 100 shares
you would then own 200
shares.
25. Stock Spin-off
a. A company may want to
divest itself from a part of
its operations and give all
of its Stock Holders new
stocks in the newly
created company.
Provide Assignment sheets and discuss
and answer any questions about
assignment (In class or take homeInstructor’s Option)
Use
11.3a_Corporate
FinancingStocks.docx
Copyright © Texas Education Agency, 2012. All rights reserved. 9 Guided Practice:
See assignments.
Independent Practice:
Review document “Spreadsheets for Statistical Purposes” – in
Common Documents.
See assignments.
Review:
Question:
What are the benefits of using bonds for
corporate financing?
Question:
What is an IPO?
Informal Assessment:
Instructor should observe student discussion and monitor interaction.
Formal Assessment:
Completion of provided assignments using included keys for grading.
Copyright © Texas Education Agency, 2012. All rights reserved. 11 Student Assignment
11.1a Corporate Financing Key
Name: ____________________
As the Vice President of Financial Operations for a New GMC Truck
Dealership, you have been assigned the task of determining what kind of
operational capital will be needed.
You have estimated sales for the first 6 months of $5,500,000.00
You expect a 6 month payroll of $300,000.00
Other Expenses for 6 months of $200,000.00
You have to buy $7,000,000.00 of inventory that will be delivered over
the six months. However, General Motors has a floor plan where you
have to pay about $1,000,000.00 per month for the vehicles.
Using these figures, how much cash would you have at the end of the six
months assuming you had $1,000,000.00 in cash to start out with.
Should you borrow more to fund the remaining operations for the fiscal
year?
What are your explanations for your conclusions?
Copyright © Texas Education Agency, 2012. All rights reserved. 12 Student Assignment
11.1a Corporate Financing Key
Name: ____________________ Answer:
I am starting out with $1 million and have $5.5 million in sales for the
first 6 months which gives me an ending cash balance (before
expenditures) of $6.5 million at the end of 6 months.
However, I am expecting $.5 million in operating expenses and $6
million in payments to General Motors or cash expenditures of $6.5
million for the first 6 months.
If my calculations are accurate, I will have no cash reserve at the end
of 6 months and that is a very risky position to be in. I would feel
more comfortable having a cash balance of $1 million in reserve. I
would want to establish a line of credit for an additional $1 million
before I open my doors.
Copyright © Texas Education Agency, 2012. All rights reserved. 13 Student Assignment
11.2a Using Corporate Bonds Key
Name: ____________________
As CFO of a large Corporation you are charge will be selling corporate
10 year bonds with a face value of $20,000,000.00.
The bonds will pay investors 6.75% per year. However, the brokerage
company will receive 1% of the face value for handling the bonds and
the bonds sold with a discount of 4.23%.
How much did you initially raise from the sales of these bonds (less fees
and discount)?
Answer : $20 million - .2 million in fees - .846 million in discount or
$18.954 million
What was the amount of interest on the bonds you will pay for each of
the 10 years?
Answer: 1.35 million per year.
What is the effective rate of interest based upon the discounted yield for
each of the 10 years?
Answer: NOT 1.35 / 20 or .0675
but 1.35 / 18.954 = .071225
Copyright © Texas Education Agency, 2012. All rights reserved. 14 Student Assignment
11.3a Using Corporate Stocks Key
Name: ____________________
Your company has been very successful. The company’s common stock price
has reflected your success. Currently, a single share of your company sells
for $289.78. Your board of directors believes that the stock price is too high
for the average investor to find appealing. They have suggested a stock split
of 3 to 1.
You company has 1,300,000 shares of capital stock on hand. They have
issued 2,700,000 share through IPOs in the past.
After they split the stock value by 3 by issuing 3 shares for every one that
exists, what will be the immediate value of a share?
Answer: $99.59 per share.
Because the shares are more affordable, the price of the individual share rises
to $104.98 within a month. How much total value has your company made on
the shares of capital stock they have in their treasury from this increase?
The administrative cost of the Stock Split was $500,000.00. Was the split
worth it to your Company?
Answer: (1.3 million shares x 3 x $5.38) - (.5 million) or $20.48 Million
Copyright © Texas Education Agency, 2012. All rights reserved. 15 NAME:________________________________ DATE:____________________________ CLASS:_________________ DECIDE IF THE FOLLOWING LISTED IS AN ASSET OR LIABILITY: 1. Cash A. Asset 2. Prepaid Expenses A. Asset 3. Inventory A. Asset 4. Accounts Payable A. Asset 5. Income Taxes Payable A. Asset 6. Notes Payable A. Asset B. Liability B. Liability B. Liability B. Liability B. Liability B. Liability MATCHING: A.
B.
C.
D.
E.
Share Coupon Interest Rate Call Provision Par Value Current Yield 7. __________ Provides the issuer of the bond with the right to redeem or retire a bond before it matures 8. __________ Units of ownership 9. __________ Ratio of the annual interest payment to the bond’s current market price 10. __________ The principal that must be repaid to the bondholder at maturity 11. __________ The percentage of the par value of the bond that will be paid out annually in the form of interest MULTIPLE CHOICE: 12. A class of stock that pays fixed and regular interest income, instead of a dividend is _____. A. Bond B. Treasury Bond C. Preferred Stock D. Common Stock 13. The money used to pay for the everyday trading activities carried out by the business. A. Finances B. Working Capital C. Personal Savings D. Operations 14. A stock dividend exceeding 25% of the number of shares currently outstanding is ______. A. Bond B. Preferred Stock C. Common Stock D. Stock Split 15. A form of equity security that represents the residual ownership of the firm is _____. A. Bond B. Treasury Bond C. Preferred Stock D. Common Stock 16. Short term sources of finance such as stocks, debtors and cash the business has at any one time are defined as ____________. Copyright © Texas Education Agency, 2012. All rights reserved. 16 A. Current Assets C. Current Liabilities B. Working Capital D. Operations NAME:________________________________ DATE:____________________________ 17.
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19.
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CLASS:_________________ Short term requirements for cash including trade and expense creditors or tax and dividend owing are defined as ______. A. Current Assets B. Working Capital C. Current Liabilities D. Operations The ____ of a share is the issue value of the share. A. Premium B. Nominal Value C. Par D. Market Value The ______ of a share is the amount at which a share is being sold on the stock exchange. A. Premium B. Market Value C. Par D. Nominal Value ________ is the legal agreement between the firm issuing the bonds and the bond trustee who represents the bondholders. A. Indenture B. Priority of Claim C. Par Value D. Call Provision When discussing stock splits, accountants consider distributions less than 25% to be ______ and those greater than 25% to be __________. A. Stock Splits, Stock Dividends B. Stock Dividends, Yields C. Stock Splits, Yields D. Stock Dividends, Stock Splits This bond rating is the highest quality and lowest credit risk. A. Aaa B. Aa2 C. Ba1 D. B2 USE THE FOLLOWING TO ANSWER QUESTIONS 23‐25: Company ABC has 5,000 shares of stock priced at $10 per share. The market capitalization is $50,000. The company later decides on a 2‐for‐1 stock split. 23. How many shares of stock are there now? A. 5,000 B. 10,000 C. 15,000 D. 20,000 24. What is the new price of each share of stock? A. $5 B. $10 C. $15 D. $20 25. If the company decided on a 3‐to‐1 split, how many total shares of stock would you have? A. 5,000 B. 10,000 C. 15,000 D. 20,000 Copyright © Texas Education Agency, 2012. All rights reserved. 17 Forecast Data Test Key
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A A A B B B C A E D B C B D D A C B B A D A B A C Copyright © Texas Education Agency, 2012. All rights reserved. 18