Finance Chapter 1-3

Vision tech is a software company based out of San Francisco. Its stockholders are mostly individual investors and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Vision Tech’s stock, would direct intervention be more or less likely to motivate the firm’s management? More likely
Vision Tech’s stock price is currently trading at $34 per share. The consensus among analysts is that the intrinsic value of Vision Tech’s stock is $27 per share. Is Vision Tech more or less likely to receive a hostile takeover bid? Less likely
Investment banks traditionally help companies raise capital
Commercial banks traditionally “department stores of finance” because they serve a variety of savors and borrowers
Financial services corporations combine many different financial institutions within a single corporation
Credit Unions cooperative associations whose members are supposed to have a common bond, such as being employees of the same firm.
Pension funds retirement plans funded by corporations or government agencies for their workers and administered primarily by the trust departments.
Life insurance companies take savings in the form of annual premiums; invest these funds in stocks, bonds, real estate, and mortgages; and make payments to the beneficiaries of the insured parties.
Mutual funds are corporations that accept money from savers and then use these funds to buy stocks, long-term bonds, or short-term debt instruments issued by businesses or government units.
Hedge funds similar to mutual funds because they accept money from savers and use the funds to buy various securities, but there are some important differences.
private equity companies organizations that operate much like hedge funds; but rather than purchasing some of the stock of a firm, private equity players buy and then manage entire firms.
Over-the-counter (OTC) market A large collection of brokers and dealers, connected electronically by telephones and computers, that provides for trading in unlisted securities.
Dealer Market Includes all facilities that are needed to conduct security transactions not conducted on the physical location exchanges
Going Public the act of selling stock to a public at large by a closely held corporation or its principal stockholders
Initial Public Offering the market for stocks of companies that are in the process of going public
Market price the current price of a stock
Intrinsic Value The price at which the stock would sell if all investors had all knowable information about a stock. Intrinsic value is based on its expected future cash flows and its risk.
Equilibrium Price The price that balances buy and sell orders at any given time. When a stock is in equilibrium, the price remains relatively stable until new information becomes available and causes the price to change.
Efficient market A market in which prices are close to intrinsic values and stocks seem to be in equilibrium. When markets are efficient investors can buy and sell stocks and be confident that they are getting good prices.
Stockholders’ equity = paid in capital + Retained earningsor =total assets-total liabilities
Net working capital =current assets-current liabilities
Net operating working capital (NOWC) =Current assets-(current liabilities-notes payable)
Operating Income (EBIT) =Sales revenues – operating costs
Earnings per share (EPS) Net income/Common Shares outstanding
Dividends per share (DPS) Dividends paid to common stockholders/Common shares outstanding
Book Value per share (BVPS) Total common equity/Common shares outstanding
FCF = [EBIT(1-T) + Depreciation and Amortization] – [Capital Expenditures + Change in Net Operating Capital]
Net Operating Work Capital (NOWC) current assets minus non-interest bearing current liabilities (non-interest bearing current liabilities are simply current liabilities minus notes payable)
Market Value Added (MVA) MVA is the difference between the market value of a firm’s equity and the book value as shown on the balance sheet.
Economic Value Added (EVA) EVA= Net operating profit after taxes (NOPAT) – Annual dollar cost of capital

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