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Walt is Finance?

Walt is Finance?. Finance is both an academic and a professional discipline devoted to the study and practice of making “investments.” Investment - anything that is owned or controlled and that has the potential to increase future consumption at the expense of current consumption. .

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Walt is Finance?

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  1. Walt is Finance? • Finance is both an academic and a professional discipline devoted to the study and practice of making “investments.” • Investment - anything that is owned or controlled and that has the potential to increase future consumption at the expense of current consumption.

  2. Two types of Financial Analysis • External to the firm (“Asset pricing”) • Internal to the firm (“Corporate finance”)

  3. Function of Financial Markets • Facilitating payments. • Allow consumption across time. • Pooling of risk.

  4. 3 Main Questions in Finance • Capital budgeting • What long-term investments or projects should the business take on? • Capital structure • How should we pay for our assets? • Should we use debt or equity? • Working capital management • How do we manage the day-to-day finances of the firm?

  5. Walt Disney Company In the late 1980s, the Walt Disney Company committed to the construction of a Disneyland Paris Theme park. The cost over $2 billion. The park opened in 1992 and was a financial bust, instead of profits it accumulated losses of $200 million.

  6. Boeing Boeings developed the 757 and 767 jets. The Cost was $3 billion, more than double the total value of shareholders’ investment by the company’s accounts at the time. By 1997 profits were approaching $8 billion and going strong.

  7. Some Definitions • Asset (investment) - anything which is owned or controlled and has potential to increase future consumption. • Financial Asset - A legal contract between specific individuals and, such that there are no contractually promised payments between specific individuals. • Real Asset – no a legal contract.

  8. Different organizational forms

  9. Some important issues • The owners of the firm. • The objective of the firm. • Is the objective of the firm ethical? • The problem of ownership and control. • What can be done?

  10. Compensation - Walt Disney Michael Eisner (CEO of) – base salary $750,000. An annual bonus of 2 percent of Disney’s net income above a threshold of “normal” profitability; and a 10 year option that allowed him to purchase 2 million shares of stock for $14 per share. Over all he got $190,000,000 in the 6 year contract.

  11. Business Ethics A store has been sold out of the popular Beanie Baby dolls for a month. A week before Christmas a single doll is discovered in a storeroom. The managers know that many customers would like to buy the doll. They announce over the store’s public address system that the doll will be sold by auction to the customer who offers to pay the most.

  12. Business Ethics A small company employs several workers and has been paying them average wages. There is severe unemployment in the area and the company could easily replace its current employees with good workers at a lower wage. The company has been making money. The owners reduce the current workers wages by 5 percent.

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