ADM 1340 Lecture 3: ADM 1340 - Lecture 3 - Introduction to Accounting & Financial Statements

114 views2 pages

Verified Note

orangecamel139

14 Jan 2019

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

ADM 1340 verified notes

3/25View all

ADM 1340 Lecture 3: ADM 1340 - Lecture 3 - Introduction to Accounting & Financial Statements

ADM 1340 Lecture 4: ADM 1340 - Lecture 4 - The Accounting Information System

ADM 1340 Lecture Notes - Lecture 5: Trial Balance, Financial Statement

Document Summary

This course is only focusing on service businesses. Shareholder"s equity: it is the capital that is kept within the company. They can do so from the first day the business opens until the day it closes. Demonstrates the level of interest in your company. This changes every day as our inventory and profit changes daily as well. The net income and the balance due indicates how much you have made and have lost along with the distribution of this through-out the year. Capital stock: beginning balance at the capital stock. Retained earnings: considers as to how much we made at the beginning of the year. What you get to keep after completing all of your payments. Dividends: what is to be paid regularly. They made ,000 in stock but are required to pay annually ,000 to the shareholders. (view slide indicating the alphabetical account balances).

Related Questions

Few IPOs have garnered as much attention as social media giant Facebookâs public offering on May 18, 2012. It was the biggest IPO in Internet history, easily topping Googleâs initial public offering eight years earlier. Letâs take a closer look at the IPO itself, as well as the payoffs to some of Facebookâs early investors.

Begin by navigating to the SEC EDGAR Web site, which provides access to company filings: http://www.sec.gov/edgar.shtml. Choose âSearch for Company Filingsâ and pick search by company name. Enter âFacebookâ and then search for its IPO prospectus, which was filed on the date of the IPO and is listed as filing â424B4â (this acronym derives from the rule number requiring the firm to file a prospectus, Rule 424(b)(4)).

2. Navigate to Google Finance and search for âFacebook.â Determine the closing price of the stock on the day of the IPO (use the âHistorical pricesâ link). What was the first day return? How does this return compare to the typical IPO?

3.Using the data provided by Google Finance, calculate the performance of Facebook in the threemonth post-IPO period. That is, calculate the annualized return an investor would have received if he had invested in Facebook at the closing price on the IPO day and sold the stock three months later. What was the return for a one-year holding period?

4.Prior to the public offering, Facebook was able to raise capital from all the sources mentioned in the chapter. Letâs concentrate on one particular source, Microsoft Corporation.

a. Microsoft made one investment in Facebook, during October 2007. Go to Facebookâs corporate news Web site (http://newsroom.fb.com) and locate the press release announcing this investment. Using the information in that press release and the number of shares owned by Microsoft listed in the IPO prospectus, calculate the per share price Microsoft paid.

b. Calculate the return (expressed on an annual basis) Microsoft earned on its investment up to the IPO (using the IPO price).

c. How much money did Microsoft receive from the IPO?

5. Facebook had only one angel investor, Peter Thiel (the founder of PayPal). Mr. Thiel invested more than once in Facebook, both as an angel and, in later rounds, on behalf of investors in his venture capital firm, Founders Fund. As an angel, Mr. Thiel invested $500,000 in September 2004. Assuming that all the shares he received in the angel round were registered under the name Rivendell One LLC,²⁴ use the information in the prospectus to calculate:

a. The per share price he paid as an angel.

b. The annualized return (using the IPO price) he made on his investment.

c. The amount of angel money Mr. Thiel received from the proceeds of the IPO (that is, from his Rivendell investments alone).

tealcaribou899

Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $95 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephensonâs annual pretax earnings by $18.75 million in perpetuity. Jennifer Weyand, the companyâs new CFO, has been put in charge of the project. Jennifer has determined that the companyâs current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with a 6 percent coupon rate. From her analysis, she also believes that a capital structure in the range of 70 percent equityy30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate (state and federal).

1.If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

2.Construct Stephensonâs market value balance sheet before it announces the purchase.

3.Suppose Stephenson decides to issue equity to finance the purchase.

A.What is the net present value of the project?

B.Construct Stephensonâs market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firmâs stock? How many shares will Stephenson need to issue to finance the purchase?

C.Construct Stephensonâs market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firmâs stock?

D.Construct Stephensonâs market value balance sheet after the purchase has been made.

4.Suppose Stephenson decides to issue debt to finance the purchase.

A.What will the market value of the Stephenson company be if the purchase is financed with debt?

B.Construct Stephensonâs market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firmâs stock?

5.Which method of financing maximizes the per-share stock price of Stephensonâs equity?

taupewildebeest962

Stephenson Real Estate Company was founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the companyï¿½s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 12 million shares of common stock outstanding. The stock currently trades at $31.40 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $80 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephensonï¿½s annual pretax earnings by $16 million in perpetuity. Jennifer Weyand, the companyï¿½s new CFO, has been put in charge of the project. Jennifer has determined that the companyï¿½s current cost of capital is 10.2 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with an 6 percent coupon rate. Based on her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be optimal. If the company goes beyond 30 percent debt, its bonds would carry a lower rating and a much higher coupon because the possibility of financial distress and the associated costs would rise sharply. Stephenson has a 40 percent corporate tax rate (state and federal).

1. If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain.

2. Construct Stephensonï¿½s market value balance sheet before it announces the purchase.

3. Suppose Stephenson decides to issue equity to finance the purchase.

a. What is the net present value of the project?

b. Construct Stephensonï¿½s market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firmï¿½s stock? How many shares will Stephenson need to issue in order to finance the purchase?

c. Construct Stephensonï¿½s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firmï¿½s stock?

d. Construct Stephensonï¿½s market value balance sheet after the purchase has been made.

4. Suppose Stephenson decides to issue debt in order to finance the purchase.

a. What will the market value of the Stephenson company be if the purchase is financed with debt?

b. Construct Stephensonï¿½s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firmï¿½s stock?

5. Which method of financing maximizes the per-share stock price of Stephensonï¿½s equity?

apricotalligator260

ADM 1340 Lecture 3: ADM 1340 - Lecture 3 - Introduction to Accounting & Financial Statements

ADM 1340 Lecture 3: ADM 1340 - Lecture 3 - Introduction to Accounting & Financial Statements

ADM 1340 Lecture 4: ADM 1340 - Lecture 4 - The Accounting Information System

ADM 1340 Lecture Notes - Lecture 5: Trial Balance, Financial Statement

Document Summary

Get access

Related Documents

ADM 1340 Lecture Notes - Lecture 22: Retained Earnings, Financial Statement, Share Capital

ADM 1340 Lecture Notes - Lecture 25: Cash Flow Statement, Cash Flow, Balance Sheet

ADM 1340 Study Guide - Midterm Guide: Revenue Recognition, No Entry, Gross Profit

Related Questions