BUS 312 Lecture Notes - Lecture 1: Nominal Interest Rate, Retained Earnings, Net Present Value

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 312
• Professor: Martin Thorsten

Document Summary

Board of directors usually friends/fam of ceo, suppliers, etc. Takeover = buy all/most of the stock at low price, then can remove the bad manager. When there are laws that make takeovers easier, managers stop enjoying the quiet life. Act more in the interest of shareholders. Equity has 2 parts: retained earnings & money raised from stocks. Usually, the diff b/t book & market value shows up in equity. Managers may use other investment evaluation techniques (not npv) b/c they don"t have a clear idea of the cash flows they will receive. Why use irr: easier to communicate to others. If you use nominal interest rate, stick with nominal values (likewise for real) Ytm = year to maturity = discount rate of bond that makes present value of bond 0 = internal rate of return. Aaa bonds should have 7. 5% ytm according to wall street charts. (1+rsa) = (1+ra) , where r is a percentage.