Module 1 - An Overview of Corporate Finance (Chapter One) and a Quick Review of Accounting (Chapter 3)

All  page numbers are references to Fundamentals of Corporate Finance, 7th  edition by Brealey, Myers, and Marcus (McGraw-Hill, 2012)

In this module, we have two objectives.  From Chapter 1, we want you to remember some finance terms and that the objective of management is to maximize firm value.  From Chapter 3, we want you to remember the various financial statements and to know the probable location of the various accounts in the Balance Sheet and Income Statement.

From  Chapter 1

Things to Absorb - Everything in the Chapter, including agency problems, advantages and disadvantages of  three major forms of business organization, goal of the management is the  maximize shareholders wealth (which are  roughly equivalent to maximizing firm  value and/or maximizing the value of stock), and some terms/terminology.  You may need to search the internet for some of the terms (you learned these terms last year in BA 530 and will use them again in this course).

Do  not need to absorb - NA.

Things to Read - You will need to read the chapter.  You may also need to search for terms using a search engine.

Things to Do - Make 100 on the quiz.  You should be able to answer end of chapter questions 1-5, 7-9, 11, 13, 18, 21, but there is no requirement that you do so.

1.  Watch the Chapter  1 Overview.  The Powerpoints for all of this chapter’s videos are here.

2. If you feel the need, watch the Chapter Lecture, which discusses the topics in the chapter.  Since this is review, most of you should be able to make 100 on the quiz by only reading the chapter.

3.  Read the chapter.

4.  Be able to answer end of chapter questions 1-5, 7-9, 11, 13, 18, 21.

5.  Take a quiz on the material from Chapter 1.

From Chapter 3 - Accounting and Finance

Things to absorb - For Chapter 3, the main focus is on the format and purpose of balance sheet and income  statement, and the names of items that might appear in these statements (e.g., depreciation is on income statement and accumulated depreciation may be on  balance sheet), names of four required financial statements, the basics of tax  calculations, and understand how to identify/calculate cash flow.

Do  not need to absorb - NA.

Things to Read - You will need to read the chapter.  You will need to search for terms using a search engine.

Things to Do - Make 100 on the quiz.  Be able to answer End of Chapter Questions/Problems 1-4, 8-10, 12, 15, 19, 22, 23, and 30.

Note,  I will ask you to know the names of many financial accounts that are not listed  in the chapter, so expect to do some Internet searches. Many account names in  financial statements vary by company (Income Statement = Profit and Loss  Statement = Statement of Income = Statement of Operations), thus part of  learning this chapter is learning potential account names. When solving  problems for this chapter, use the Internet to look up terms with which you are  unfamiliar. This is especially applicable when solving the scrambled income  statement/ balance sheet problems.

1.  Watch the Chapter  Introduction.  The Powerpoints for all of this chapter’s videos are here.

2.  Watch the Chapter  Lecture, which reviews all of the topics in the chapter. 

3.  Watch the Income  Statement and Balance Sheet video.  The Powerpoints for all of this video are here,  starting at about Slide 10.

4.  Read pages 53-63.

5.  Watch the Statement of Cash Flows and Taxes Video.  The Powerpoints for all of this video are here,  starting at about Slide 32.

6.  Read the rest of the chapter. 

6.  Be able to answer End of Chapter Questions/Problems 1-4, 8-10, 12, 15, 19, 22, 23, and 30.

7.  Since the main focus is the on the format of statements, the most complex quiz  problems require you to unscramble and solve for missing numbers in the income  statement and balance sheet. To solve these big problems, you must be able to  solve smaller segments of the statements. Here are audio solutions that focus  on the smaller components:

a.  Audio solution to: In its recent income statement,  Smith Software Inc. reported $26 million of net income, and in its year-end  balance sheet, Smith reported $353 million of retained earnings. The previous  year, its balance sheet showed $339 million of retained earnings. What were the  total dividends paid to shareholders during the most recent year? (Answers are  in $ millions.)

b.  Audio solution to: In its recent income statement,  Smith Software Inc. reported paying $10 million in dividends to common  shareholders, and in its year-end balance sheet, Smith reported $365 million of  retained earnings. The previous year, its balance sheet showed $354 million of  retained earnings. What was the firm's net income during the most recent year?  (Answers are in $ millions.)

c.  Audio solution to: Cox Corporation recently  reported an EBITDA of $66 million and $8 million of net income. The company  has $11 million interest expense and the corporate tax rate is 40.0% percent.  What was the company's depreciation and amortization expense? (Answers are in $  millions.)

d.  Audio solution to: Brooks Sisters' operating  income (EBIT) is $140 million. The company's tax rate is 40.0%, and  its operating  cash flow is $115.3 million. The company's interest expense is $28 million. What  is the company's net cash flow? (Assume that depreciation is the only non-cash  item in the firm's financial statements.) (Answers are in $  millions.)

8.  Here is an audio solution to a complex scramble/unscramble Balance Sheet Income Statement Problem: Fill in the missing numbers. Prepaid expenses _________  Additional paid-in capital _______ Property, plant and equipment, net  ________ Total Liabilities and Equity ________ Net income _______  Tax payable _______ Interest expense ________   Net sales __________ Deferred (Long term) income tax liabilities ________  Operating expenses _________  Change in Retained Earnings 177 Total current assets 2495 Cash 660  Trade Receivables 749 Operating income 557 Income before provision for income taxes 538 Inventories 872  Income taxes receivable 100 Other long term assets 384  Accounts payable 407 Deferred revenue 38 Accrued program costs 536 Total Assets 4474  Other long term Liabilities 43 Retained earnings 1945  Total liabilities 1896 Cost of sales 2097 Gross profit 1713 Intangible assets, net  1071  Income taxes expense 199 Dividends 162 Total current liabilities 1104 Long-term debt 516 Accrued expenses 101 Common stock 31

9. Take a quiz over the Chapter 3 material.