Bài giảng Economics - Chapter 16 Financial Management and Securities Markets

Chapter SixteenFinancial Managementand Securities MarketsTypes of Current Assetsand Current LiabilitiesCurrent assets(Financial resources that can be converted to cash within a year)Current Liabilities(Short-term debt obligations that must be paid within a year)16-1CashMarketable securitiesAccounts receivableInventoryAccounts payableWages payableTaxes payableNotes (loans) payableShort-term InvestmentPossibilities for Idle Cash16-2Type of Security Maturity Issuer of Security Interest Rate (March/02)Treasury Bill 1 month Bank of Canada 1.99%Treasury Bill 3 months Bank of Canada 2.01%Treasury Bill 6 months Bank of Canada 2.27%Treasury Bill 1 year Bank of Canada 2.88%Govt. of Canada Bonds 2 years Govt. of Canada 3.70%Short Term Deposits 30-59 days Banks, Trust and Loan cos. 0.90 – 1.90 %Short Term Deposits 60-99 days Banks, Trust and Loan cos. 0.90 – 1.90 %Short Term Deposits 90-119 days Banks, Trust and Loan cos. 0.90 – 1.90 %Fixed Term Deposits 1 year Banks, Trust and Loan cos. 1.30 – 2.50 %Fixed Term Deposits 2 years Banks, Trust and Loan cos. 2.25 – 3.37 %Bank LoansLine of Credit An arrangement by which a bank agrees to lend a specified amount of money to an organization upon requestSecured loans Loans backed by collateral that the bank can claim if the borrowers do not repay the debtUnsecured loans Loans backed only by the borrowers’ good reputation and previous credit rating16-3American Express extends lines of credit to its Small Business Services customers.16-4Qualitative Assessment of Capital Budgeting Risk16-5Introduce a New Product ina Familiar AreaIntroduce a New Product inForeign Markets (risk dependson stability of country)Expand into a New MarketAdd to a Product LineBuy New Equipment foran Established MarketRepair Old MachineryHighest RiskLowest RiskThe Impact of Organizational Performance on Investment Decisions16-615%14%12%14%Types of BondsUnsecured Debentures, or bonds, that are not backed by specific collateralSecured Bonds that are backed by specific collateral that must be forfeited in the event the issuing firm defaultsSerial A sequence of small bond issues of progressively longer maturity16-7aTypes of BondsFloating-rate Bonds with interest rates that change with current interest rates otherwise available in the economyJunk Special type of high interest rate bond that carries higher inherent risks16-7bA Basic Bond Quote16-8Issuer (1) Coupon (2) Maturity (3) Price (4) Yield - % (5) Price Change - $ (6)Canada 11.750 Feb 01/03 109.37 2.41 -0.04Royal Bank 5.400 April 07/03 102.99 2.84 -0.034Suncor 6.700 Aug. 22/11 100.88 6.57 -0.05Domtar 10.000 April 15/22 108.53 8.63 -0.05Issuer – the name or abbreviation of the name of the government or corporation issuing the bondCoupon – the annual percentage rate specified on the bond certificate. Domtar’s rate is 10%, so a $1,000 bond will receive $100 per year.Maturity – the bond’s maturity date; the date on which the issuer will repay the bondholders the face value of each bond; April 15, 2011 for Domtar.Price – the closing price. For Domtar, 108.58 = percent of the face value or $1,085.58 per bond.Yield – percentage return from interest, based on the closing price (column 4). If you buy a Domtar bond at today’s closing price of 108.85 ($1,085.58) and receive $100 per year, your rate of return to maturity will be 8.63%.Price Change - $ - the change in price from the close of the precious trading day. Domtar’s bond price decreased by $0.05.A Basic Stock Quote16-91. 365-day high1. 365-day low2. Stock3. Sym4. Div5. High6. Low7. Close8. Chg9. Vol100s10. Yld11. P/eratio10.351.15Air CanadaACA3.893.663.68-0.2718910.900.80ImaxIMX5.154.904.90-0.1020530.8118.75IntrawestITW0.1624.2523.7023.85+0.253900.712.115.959.55LinamarLNR0.1613.5813.1513.30+0.168891.220.113.895.85MagnaMIE.A13.2412.8513.00-0.0529672.261.107.50Nortel NetworksNT12.4011.4511.58-0.3294,644115.0018.69Research in MotionRIM35.9033.9434.07-0.877,43553.2541.60Royal Bank of CanadaRY1.4450.3549.5649.63-0.667,2702.914.01. Highest and lowest intra-day price in the past 52 weeks.2. Abbreviated company name.3. Ticker symbol assigned to the issue by the exchange.4. Indicated annual dividend as reported by the exchange.5. Highest intra-day trading price.6. Lowest intra-day trading price.7. The closing price.8. Number of shares traded in 100s.9. Change between the closing price and the previous closing stock price.10. Yield expressed as a percentage, calculated by dividing the dividend by the current market price.11. Price/earnings ratio; current stock price divided by the company’s earnings per share from continuing operations for the latest rolling 12 months.The 30 Stocks in the Dow Jones Industrial Average16-10aAbitibi-Consolidated Canadian Pacific Placer DomeBarrick Gold Canadian Tire Corp. Research in MotionAlcan Dofasco Inc. Royal Bank of CanadaBombardier Inc. Husky Energy Shaw CommunicationsBCE Inc. Magna International Suncor EnergyBank of Montreal Inco Ltd. TELUSBank of Nova Scotia National Bank of Canada TransAlta Corp.Biovail Nova Chemicals Corp. Teck Corp.Celestica Noranda Inc. TD BankCIBC Nortel Networks Corp. Talisman EnergyCanadian National Railway Nexen Thomson CorporationPetro Canada TransCanada PipelinesThe Stocks in the TSE Index16-10b*The Major Indices Created for the TSETSE 300 Composite IndexTSE 300 Capped Composite IndexTSE 200 IndexTSE 100 IndexS&P/TSE 60 IndexS&P/TSE 60 Capped IndexS&P/TSE Canadian SmallCap IndexS&P/TSE Canadian MidCap IndexToronto 35 Index16-10c*Dow’s Milestones16-11Time it took for the industrial average to go from:5,168days357days1,000 to 2,0009,000 to 10,000Solve the Dilemmaa. Normally, rapidly increasing sales is a good thing. What seems to be the problem here?b. List the important components of a firm’s working capital. Include both current assets and current liabilities.c. What are some management techniques applied to current liabilities that Glasspray might use to improve its working capital position?16-12Explore Your Career OptionsWhat types of skills would be most useful to a financial manager? What are some of the most stressful aspects of the job?16-13Additional Discussion Questions and Exercises1. Why would a business use a lockbox to receive payments?2. What are the advantages of a firm using electronic funds transfer rather than traditional check-clearing procedures?3. What is a junk bond? Why do investors buy junk bonds?4. What do companies do with retained earnings?5. Why is the prime rate of interest important for business firms?16-14Chapter 16 Quiz16-15a1. Which one of the following is an example of a current liability? a. accounts receivable b. marketable securities c. wages payable d. inventory2. Which of the following is an example of a current asset? a. cash b. accounts payable c. accrued salaries d. short-term bank loansChapter 16 Quiz16-15b3. Which of the following is where new issues of stocks and bonds are sold directly to the public? a. primary market b. secondary market c. over-the-counter market d. investment banks4. The payout ratio refers to a. the dividend rate divided by the stock market average. b. dividends per share divided by earnings per share. c. the percentage of return an investor has earned on the original investment. d. the coupon rate on bonds that change with current interest rates.