Class Structure
Intro and TMV Review (Supplemental Notes)
Class Structure
● Homeworks are turned in during class as a hard copy
○ Due Dates
■ HW 1 - 3/28
■ HW 2 - 4/18
● (Turn in written portion on paper, excel portion digitally)
■ HW 3 - 4/25
○ Print and bring HW to the previous class to ask questions
○ Homework can be turned in with answers written on the printed original copy, so
long as it is legible [source: asked via email]
● Project assignments are turned in weekly on canvas
○ Label files last name first initial (Example: Swain E)
○ Everyone gets 1 company from a list of 8 (see canvas)
○ Final groups will have 1 person from each company (so no groups will have 2
people who both did COSTCO or 2 who did Kroger, etc…)
○ Groups are determined by merit on individual assignments
○ While 2022 K-10’s are not presently available, current events should be
considered in your determination about the state of companies on the final.
○ Appropriate number of decimal places means dollars and cents, and to the 100’s
place on percentages. Examples: $130.45 or 89.66%
● Class Grade Breakdown
○ 25% McGinnis Exam
○ 20% HW/Attendance/Participation
○ 15% Individual portion of final project (assignments 1-5)
○ 15% Group portion of final project (assignments 6-7)
○ 25% Final exam
● Anne is available in her office afternoons Monday, Wednesday, Friday, as well as
between 4 and 5:30 on Tuesdays
○ If you schedule an appointment offer multiple times
Intro and TMV Review (Supplemental Notes)
● Overview
○ Finance is about future; Accounting is historical
○ Goal of a firm is to maximize stakeholder value.
○ Net income isn’t cash, so even positive net income companies can go bankrupt
○ Corporate financial management relates to types of cash flows on statements
■ Investment decision → cash flows from investing activities
■ Financing decisions → cash flows from financing activities (loans,
debt/equity)
■ Managerial decisions → cash flows from operating activities
● Shareholders
○ Shareholders have the right to vote on the board of directors (but usually there’s
only as many folks running as there are chairs – if there are more people running,
it’s a proxy fight.)
○ Shareholders have the right to dividends IF paid out
○ Shareholders have the right to public information about the company’s prospects
but NOT private information (sharing private info = insider trading = illegal)
○ Shareholders can vote on CEO’s compensation and if a company merges or not –
but usually the actions are still determined by the board of directors
● Goal of Corporation
○ Maximize stakeholder value
○ Growing earnings creates value only if those earnings are used wisely
● Agency Costs
○ When companies get in trouble and want help, then have to ask Washington D.C.
for help at Congress. During the 2008 Financial Crisis, Auto executives showed
up to ask for help in private jets. → Greed caused the 2008 financial crisis
○ What do shareholders do to discipline greedy managers?
■ When you sell shares because you disapprove of how a company is run,
that’s called “walking with your feet.”
● Others may, alternatively, choose to buy more shares so that their
voice and vote matters more
■ Shareholders can vote to replace board directors but that’s really not easy
■ Shareholders can try to reduce greedy manager’s pay, but the board won’t
usually let that happen
● True/False
○ The owner of a sole proprietorship has personal liability for the firm’s debts, but
the shareholders of a corporation are not personally liable for the firm’s debts –
TRUE (Note: shareholders may not get much return if the corp does poorly.)
○ Limited liability companies (LLC) and limited liability partnerships (LLP)
provide the protection of limited liability and are taxed as corporations. TRUE
○ A company can have multiple classes of common stock that have different voting
rights TRUE (Example: Berkshire-Hathaway A versus Berkshire-Hathaway B)
● Time Value of Money - Key Equations
○ Three types of cash flows: annuity, perpetuity and single
■ Annuities go for a fixed period of time (like a 40-year mortgage)
■ Perpetuities go forever (like earnings from a rental property)
○ Draw timelines until you understand what’s happening → the goal is to get values
in the same time period to compare
○ Present value * (1 + rate)periods= future value
See In Class
Examples:
walkthroughs for
remaining slides
(“March 14”)