Business finance : theory and practice

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Appendix: Jackson plc’s 2007 financial statements APPENDIX Jackson plc’s income statement and balance sheet for 2007 Jackson plc Income statement for the year ended 31 December 2007 £ million £ million £ million Revenue 701 Cost of sales (394) Gross profit 307 Distribution costs Salaries and wages (35) Motor expenses (41) Depreciation of motor vehicles (16) Sundry distribution expenses (14) (106) Administrative expenses Salaries and wages (53) Motor expenses (21) Depreciation of motor vehicles (18) Sundry administrative expenses (12) (104) 210 Operating profit 97 Interest payable (33) Profit before taxation 64 Taxation (18) Profit for the year 46 The cost of sales figure includes depreciation of £22m and raw materials inventories usage of £190m. During the year raw materials inventories purchases totalled £187m. 75
Chapter 3 • Financial statements and their interpretation Jackson plc Balance sheet as at 31 December 2007 Cost Depreciation £ million £ million £ million Assets Non-current assets Freehold land 550 – 550 Plant and machinery 232 (198) 34 Motor vehicles 90 (21) 69 872 (219) 653 Current assets Inventories 41 Trade receivables (debtors) 108 Prepaid expenses 10 159 Total assets 812 Equity and liabilities Equity Ordinary share capital – 200 million shares of £1 each 200 Retained profit 151 351 Non-current liabilities 10% secured loan notes 300 Current liabilities Bank overdraft 86 Trade payables 43 Accrued expenses 14 Taxation 18 161 Total equity and liabilities 812 The market price of the ordinary £1 shares was £3.49 at 31 December 2007. During 2007 the company paid a dividend on the ordinary shares totalling £15 million. 76
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Business Finance Theory and Practic
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We work with leading authors to dev
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Pearson Education Limited Edinburgh
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Contents 3 Financial (accounting) s
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Contents 7.12 Arbitrage pricing mod
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Contents 12.6 Dividends: the eviden
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Guided tour of the book Objectives
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Supporting resources Visit www.pear
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Preface updated and expanded. Where
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PART 1 The business finance environ
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Chapter 1 • Introduction 1.1 The
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Chapter 1 • Introduction 1.3 The
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Chapter 1 • Introduction Since it
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Chapter 1 • Introduction Where di
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Chapter 1 • Introduction concerne
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Chapter 1 • Introduction Borrowin
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Chapter 1 • Introduction time is
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Chapter 1 • Introduction Private
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Chapter 2 • A framework for finan
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Chapter 2 • A framework for finan
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Page 100 and 101: Net present value (most unlikely in
Page 102 and 103: Net present value Investment opport
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An example of an investment apprais
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Capital rationing Example 5.6 A bus
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Capital rationing There is no mathe
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Replacement decisions Helpful but l
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Routines for use with investment pr
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Investment appraisal and strategic
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Value-based management Select strat
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Value-based management Corporation
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l l Value-based management Use capi
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Real options 5.13 Real options ‘
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Summary Capital rationing l l l l M
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Problems PROBLEMS Sample answers to
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Problems by 31 December 20X7. The c
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Problems Based on an estimated cons
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Chapter 6 Risk in investment apprai
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Sensitivity analysis Example 6.1 Gr
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Sensitivity analysis (6) Cost of ca
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Use of probabilities Clearly, these
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Use of probabilities Solution This
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Expected value Possible outcome NPV
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Systematic and specific risk If, ho
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Utility theory Figure 6.2 Utility o
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Attitudes to risk and expected valu
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Summary Summary Risk l Risk is of v
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Problems REVIEW QUESTIONS Suggested
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Problems Project Initial outlay NPV
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Problems Estimates of the various f
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Problems ‘ There are sets of mult
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The relevance of security prices Th
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Security investment and risk Exampl
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Portfolio theory portfolio. Further
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Portfolio theory Table 7.1 Risk and
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Portfolio theory Figure 7.4 The ris
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Portfolio theory Figure 7.6 The eff
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Portfolio theory tangential to r f
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Capital asset pricing model Beta: a
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CAPM: an example of beta estimation
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CAPM - what went wrong? CAPM has be
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Arbitrage pricing model point is se
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l Portfolio theory - where are we n
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Review questions l l Managers diver
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Appendix: Derivation of CAPM APPEND
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Appendix: Derivation of CAPM or E(r
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Chapter 8 Sources of long-term fina
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Ordinary (equity) capital Figure 8.
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Ordinary (equity) capital Young and
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Methods of raising additional equit
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Preference shares perspective, than
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Loan notes and debentures are issue
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Loan notes and debentures Methods o
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Loan notes and debentures The relat
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Asset-backed finance (securitisatio
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Leasing from the large first-year a
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Conclusions on long-term finance Br
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Summary l l Rights issue = issue to
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Review questions l This too is quit
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The London Stock Exchange The exist
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The London Stock Exchange When memb
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Capital market efficiency current s
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Tests of capital market efficiency
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Conclusions and implications would
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Conclusions and implications winner
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Further reading l The current price
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Cost of individual capital elements
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Weighted average cost of capital ta
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Weighted average cost of capital Th
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Practicality of using WACC as the d
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Openmirrors.com Summary figure is s
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Problems 10.6 Vocalise plc has rece
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Is debt finance as cheap as it seem
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Business risk and financial risk Ta
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The traditional view 11.4 The tradi
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The Modigliani and Miller view of g
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Other practical issues relating to
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l Evidence on gearing a shareholder
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Gearing and the cost of capital - c
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Pecking order theory Figure 11.5 Th
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Weighted average cost of capital re
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Summary Summary Capital (financial)
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Problems A board meeting has been s
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Appendix I: Proof of the MM cost of
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Appendix II: Proof of the MM cost o
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Modigliani and Miller on dividends
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The traditional view on dividends W
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l l l l Other factors raising an eq
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Other factors is interpreted advers
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l l l Dividends: the evidence a ten
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Dividends: the evidence attract ins
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Conclusions on dividends Agency Age
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Problems l l l l Debt finance - rel
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Problems It has been estimated that
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Appendix: Proof of the MM dividend
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PART 4 Integrated decisions There a
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Chapter 13 • Management of workin
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Chapter 14 • Corporate restructur
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Chapter 15 International aspects of
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Chapter 15 • International aspect
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Chapter 16 Small businesses Objecti
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Chapter 16 • Small businesses The
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Chapter 16 • Small businesses 16.
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Chapter 16 • Small businesses sma
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Chapter 16 • Small businesses l l
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Chapter 16 • Small businesses Fig
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Chapter 16 • Small businesses Sol
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Chapter 16 • Small businesses 16.
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Chapter 16 • Small businesses l l
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Chapter 16 • Small businesses REV
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Chapter 16 • Small businesses Bal
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Chapter 16 • Small businesses (b)
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Chapter 16 • Small businesses ‘
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Appendix 2 Annuity table Present va
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Appendix 3 • Suggested answers to
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Appendix 4 Suggested answers to sel
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Glossary Accounting rate of return
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Glossary Forward (foreign exchange)
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Glossary of its effective life. It
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References Aharony, J. and Swary, I
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References Dimson, E., Marsh, P. an
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References markets. Journal of Busi
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Index Note: Page references in bold
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Index Draper, P. 399 Drury, C. 121,
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Index Mehrotra, V. 314 Memoranda of
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Index Stock Exchange Automated Quot
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