Exam 3
Finance 301 with Wachowicz at University of Tennessee - Knoxville
About this deck
By: mitch kaufman
Textbook:
Fundamentals of Financial Management (12th Edition)
Created: 2011-10-27
Size: 34 flashcards
Views: 160
Textbook:
Fundamentals of Financial Management (12th Edition)Created: 2011-10-27
Size: 34 flashcards
Views: 160
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Expected Return of a portfolio
(Wj)(Rj)
(Proportion of total funds invested in "j")(expected return for security "j")
Systematic Risk
Unavoidable Risks such as changes in economy, tax reform or change in the world energy situation.
Unsystematic Risk
Avoidable risks which are unique to a particular company or industry. Such as strikes, company management, marketing strategies
Standard Deviation for security or a portfolio
Non Diversifiable (systematic) + Diversifiable (nonsystematic)
standard deviationNj + Standard Deviation(R j,m)
(R j,m)=correlation coefficient between security return and return on market
Characteristic Line
Determines the degree of systematic risk.
Beta
Slope of the characteristic line. Greater the beta the greater the unavoidable risk.
Portfolios Beta
Weighted average of the individuals tock betas in the portfolio. Beta of a stock represents its contribution to the risk of a highly diversified portfolio of stocks
Market Portfolio
Has a beta = 1
Required Rate of Return for a Stock
Rf+(Rm-Rf)Beta
Risk free rate(expected return-risk free rate)beta coefficient
Risk free rate(expected return-risk free rate)beta coefficient
Net Working Capital
Current Assets-Current Liabilities
Gross Working Capital
The firms investment in current assets
Working Capital Management
The administration of the firms current assets and the financing needed to support current assets
2 Principals of Working Capital Management
1. Profitability varies inversely with liquidity
2. Profitability moves together with risk
ROI
Net Profit
Cash+A/R+INV+FA
Temporary Working Capital
The amount of current assets that varies with the seasonal requirements
Permanent Working Capital
The amount of current assets required to meet the firms long term minimum needs
Hedging
Each asset would be offset with a primary instrument of the same approximate maturity
Asset Short Term/Maturity Short Term
Moderate Risk
Asset Long Term/Maturity Short Term
High Risk
Asset Short Term/Maturity Long Term
Low Risk
Asset Long Term/Maturity Long Term
Moderate risk
"Rule of Thumb" for LockBox
Firms will benefit from speeding up cash receipts and slowing down cash payments
Lockbox Evaluation
(Cost per Remittance x Total Number of Remittances per year) + FC VS (Total Yearly Receipts/365 x Days Saved x Opportunity Cost as %)
Variable Costs
Cost Per Remittance x Total number of remittances per year
Cash freed up
(Total Yearly Receipts/365) x (Days Saved)
Accounts Receivable Conversion (ARC)
Process where checks are converted into Automated Clearing House (ACH) debits. Reduces availability float associated with check clearing
Float
The dollar difference between the balance shown in a firms checkbook balance and the balance on the banks books
Cost of not taking discounts
(%discount/100%-%discount) x (365/payment date-discount period)
Money Market Instruments Backed by the Govt
Bills
Notes
Bonds
Commercial Paper
Short Term unsecured promissory notes. Generally issued by corporations
Total Carrying Costs of Inventory
(Carrying Cost Per Unit) x (Average Units of Inventory)
Order Point
Lead Time x Daily Usage
EOQ
Square Root of (2)(Ordering Cost Per Unit)(Usage per Period)
Carrying Cost Per Unit Per Period
About this deck
By: mitch kaufman
Textbook: Fundamentals of Financial Management (12th Edition)
Created: 2011-10-27
Size: 34 flashcards
Views: 160
Textbook:
Fundamentals of Financial Management (12th Edition)Created: 2011-10-27
Size: 34 flashcards
Views: 160
About StudyBlue
STUDYBLUE makes things that make you better at school.
Things like online flashcards with photos and audio.
Things like personalized quizzes and friendly reminders about when (and what) to study next.
Think of it as a digital backpack™: access to all of your study materials online and on your phone.
STUDYBLUE exists to make studying efficient and effective for every student, for free. Join us.
“I have been getting MUCH better grades on all my tests for school. Flash cards, notes, and quizzes are great on here. Thanks!”
Kathy
Kathy