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There are a number of countries in the European Union that share open borders and free trade but have not adopted the euro. As you know, Great Britain is one. The countries in the European Union (EU) include the 15 eurozone countries and 12 other countries. This is a list of countries in the European Union: There are about 300 million people in the nations that have officially adopted the euro and 500 million in the European Union (EU). The EU is designed to allow the free flow of goods, labor, services, and transit. In practice there are still some obstacles to the complete implementation of this concept. You might notice that Switzerland is not on either list. That country has chosen to maintain its tradition of independence and neutrality. Rodney: If there are such advantages, why don‟t all the countries in the EU adopt the euro? Dad: Some countries have tried. They put the prospect to a vote and the people rejected the euro. Perhaps it is national pride. Other countries have leaders who are concerned about the promises made in the various countries‟ versions of Social Security. Unlike the United States, the population is declining in several countries and, just as here, the system is underfunded. Also, governments have different policies about taxing, spending, military expenditures, and international conflicts. For now, take a look at the exchange rate between the dollar and the euro at the end of the month specified (Exhibit 7.5). This is quite a large range. In December 2001 $1,000 would buy €1,289. By June 2008, it would take $2,036 to purchase the same amount of euros. Let‟s do the math. Divide the euro amount by the exchange rate to get the dollar amount (Exhibit 7.6).
Exhibit 7.5 Amount of euros (€) purchased by one dollar ($). Source: FXHistory © 1997-2008 by OANDA Corporation. Exhibit 7.6 Conversions between dollars and euros. Lesson: One currency can eliminate some country risks, but the exchange rate risk still exists with other countries. Also, there may be added risks of different economic policies of countries within the European Union. Currency Exchange Rates: A Case in China with Country Risk Dad: Let‟s look at an investment from a business point of view. Consider the following case: A multinational corporation needs to invest in many countries and for periods of many years. We will look at an investment in China. There is a long history, but we will look only at relatively recent background. I‟ll pick a period with interesting times. Let‟s assume that the initial investment was made on October 23, 1995. China has been a special case because the government has taken steps to keep its currency stable compared to the U.S. dollar. China is a manufacturing superpower. Assume that you are CFO of a small engine manufacturer, Small Co., looking to build a $100 million plant in China. Let‟s assume that your company requires a
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Table of Contents Title Page Copyri
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Chapter 6 - Planning Capital Expend
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For Further Reading Part IV - Manag
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Successful Postmerger Implementatio
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This book is printed on acid-free p
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Syllabus How Chapter Topics in This
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Some of these experts are full-time
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About the Contributors Richard T. B
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Advances in Quantitative Analysis o
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enterprise development. Dr. Zachara
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The left side shows Nutrimin‟s in
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Gail, let‟s go over this balance
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Gail, do you have any questions abo
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11. Not all expenses are cash outfl
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Financial Statements: Who Uses Them
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profitability to keep investing for
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Financial Accounting Standards It i
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Downloadable Resources for this cha
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Next, we explain each of these thre
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liquidity. Or, more simply, achievi
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If these ratios are seriously defic
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The debt-to-equity ratio is evaluat
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year 1 to year 3. The net effect wa
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to rate of return on the equity. Th
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Other types of comparisons of finan
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income/sales), asset turnover (sale
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successful businesspeople should ha
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More than a decade ago, a special c
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companies is used for illustration.
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The identification of nonrecurring
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The Dow Chemical single-step income
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is a pretax measure, but income fro
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Sources: Companies‟ annual report
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Exhibit 3.11 Examples of discontinu
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amortization purposes, the Company
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Examples of nonrecurring items disc
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During Fiscal 2006, inventory quant
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The nonrecurring items of Boston Sc
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The disclosure presented earlier in
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gains or losses that appear as part
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ecurring as for Kimberly-Clark, the
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Summarizing Nonrecurring Items and
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This example of using the SEB works
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Exhibit 3.27 Other income (expense)
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Source: Pfizer, Inc., annual report
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Exhibit 3.30 Acquisitions note: Pfi
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Source: Pfizer, Inc., annual report
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Exhibit 3.33 Cost-reduction initiat
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Exhibit 3.36 Share-based payment no
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The Pfizer Worksheet Analysis: Down
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Some Further Points on the Pfizer W
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• It is common to treat items as
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FedEx Corporation (2007) First Sola
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1 The American Institute of Certifi
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28 These alternative translation me
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If you need some instruction in Exc
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To solve using Excel, open your Exc
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As you can see from the previous ex
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C6 = 5 • Now enter the “=” si
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Ordinary Annuity An ordinary annuit
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To confirm that the number of payme
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The FV of this first payment into t
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Exhibit 4.15 Finding the future val
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Exhibit 4.18 Finding the present va
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From Exhibit 4.20, we see that as t
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Exhibit 4.22 Amortization schedule
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Exhibit 4.25 Regular cash flows wit
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Internet Links For Further Reading
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Investors who are risk averse will
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considering the risk of a single as
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Portfolio Risk Stand-alone risk is
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In spite of unique or diversifiable
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If a particular stock is highly sus
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The formula tells us that, to begin
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for the entire market of stocks sin
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Page 164 and 165: If you are able to determine the cu
Page 166 and 167: Debt finance is the lower-cost meth
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Page 170 and 171: Capital Structure in Practice Finan
Page 172 and 173: are able to observe regularities in
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Page 176 and 177: where EBIT is earnings before inter
Page 178 and 179: Since long-term debt holders have a
Page 180 and 181: accept more investment projects. Re
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Page 186 and 187: accounts receivable, and tabulates
Page 188 and 189: profit by the tax rate determines t
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Page 204 and 205: complete with its real options is g
Page 208 and 209: What does it matter that one invest
Page 210 and 211: Exhibit 7.3 Time line in dollars an
Page 214 and 215: eturn of 10% on its investments in
Page 216 and 217: Exhibit 7.12 Summary of exchange ra
Page 218 and 219: and so will the value of the liabil
Page 220 and 221: Source: CIA, World Factbook, availa
Page 222 and 223: Exhibit 7.18 Net present value of c
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Page 226 and 227: So if the assistant treasurer was r
Page 228 and 229: This theory is far from perfect, as
Page 230 and 231: The Consulting Firm Jennifer, Jean,
Page 232 and 233: part by a statute, the Uniform Limi
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Page 238 and 239: Phil‟s death may terminate the bu
Page 240 and 241: the transfer. This means that if Br
Page 242 and 243: These rules extend to tort liabilit
Page 244 and 245: In the absence of a meeting, stockh
Page 246 and 247: A more detailed discussion on the b
Page 248 and 249: Partnerships If possible, the resul
Page 250 and 251: associated with this arrangement ar
Page 252 and 253: Partnerships are also not separate
Page 254 and 255: For most start-up businesses, howev
Page 256 and 257: form, even at the risk of some unli
Page 258 and 259: likely that our consultants will be
Page 260 and 261: Thus, the corporation and LLC, with
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It is not possible to fully describ
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usiness corporation for all purpose
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a cash-basis taxpayer to be taxed a
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The Tax Reform Act of 1986 substant
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limit is the product of the value o
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he would have spent anyway. In fact
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protect Brad from the scenario of h
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paying for the privilege. If the st
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The second tax scenario attaches to
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include that nullity in his taxable
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then the capital gain to be taxed h
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Most relevant to Morris is Section
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To begin with, the ESOP will have t
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general partner of a limited partne
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small businesses) is also subject t
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oth Lisa and Brad would be free to
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Assume that a limited liability com
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corporations, and had been audited
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There is plenty of blame from the c
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• An important study about top ma
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• The federal government made at
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$79.7 million for other services, a
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Budgets offer a variety of benefits
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determine the impact of specific pr
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Exhibit 11.2 Budget variance report
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udget, we just add more to it next
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income statement. The financial bud
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For a manufacturing company, cost o
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C&G‟s Gift Shop has a policy to m
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Meeting cash obligations as they co
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was unusually low, say, due to the
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A fixed budget, sometimes called a
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A large part of the budget selling
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• Centralized resource allocation
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Merewitz, Leonard, and Stephen H. S
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This chapter starts with a discussi
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Interestingly the numbers for quart
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Exhibit 12.4 Scenarion analysis.
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Pitfalls Although this analytic tec
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Exhibit 12.6 Variable cost element
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Variable Cost as a Function of Outp
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If scenario 2 yields a lower profit
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Microsoft certainly does not price
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If it is determined that dumping ha
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Leaving government agencies and not
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transaction processing. Each proces
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Exhibit 13.3 E-commerce transaction
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To summarize the analysis, the busi
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Capacity costs are probably the mos
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which it was, but for the inventory
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They called this strategic cost man
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A closer study, however, revealed s
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the benefits of business planning.
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The last type of plan is called a d
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The Business Plan We will progress
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Hook the Reader That means having t
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Industry The goal of this section i
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upscale suburban client who wants p
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Company and Product Description Com
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Exhibit 14.8 shows the competitive
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Exhibit 14.9a Advertising schedule.
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Scope of Operations What is the pro
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Development Time Line A development
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By law, most organization types req
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As mentioned in the development pla
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that can be depreciated, you should
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1 Special thanks to Matt Feczko, Mi
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For better or worse, the business e
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Leeson bet and lost. Japanese stock
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Between February and April 1994, Da
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LTCM could be picky when it came to
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An investor who wished to invest in
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Similarly, the swaps market has rev
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speculator would suffer losses equa
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American manufacturer will suffer l
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The ease with which futures facilit
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Exhibit 15.1 Call option payoff dia
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Exhibit 15.2 Payoff diagram for a w
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Notice that the put option payoff r
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Bank, owns a large block of NASDAQ
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can be tailored so that the money r
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Finally, the last step is to choose
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3 Fischer Black, who co-invented th
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not include assets that the firm ha
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Thus, a business valuation will usu
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Negative • Acme is highly depende
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Exhibit 16.3 Acme Manufacturing, In
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Profitability ratios reflect the re
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When we talk about the value of a b
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This example illustrates that with
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Income Approach: Discounted Cash Fl
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Exhibit 16.5 Acme Manufacturing, In
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Victoria explains that the second p
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Victoria analyzes Acme‟s audited
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In summary, the discounted cash flo
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Adjustment for Illiquidity As previ
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51% position sells for a higher pri
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examples. The proper application of
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The subject of this chapter is grow
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Finally, an acquisition can be effe
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M&A activity has been the focus of
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companies continue to make the same
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equals was taking on a distinctive
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Anatomy of a Successful Acquirer: T
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employees kept their original jobs
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where ΔCF t is the incremental cas
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where it‟s ultimately buried. Suc
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The following example summarizes th
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make sure that you are at least awa
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acquisition, there is no immediate
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its vascular business, which was so
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While all employees should be part
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makes strategic and financial sense
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Bhagat, Sanjai, Ming Dong, David Hi
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The 2008 financial crisis underscor
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Source: Plunkett’s Outsourcing &
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To summarize: Trends • Large numb
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Companies are becoming increasingly
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What steps should a company follow
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• Results of meetings with vendor
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• Breach of contract and remedies
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Assuming the project or service rev
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The answer is: profits. The company
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19 Information Technology and You D
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People‟s lives have been turned u
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its self-contained rechargeable bat
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Random-Access Memory (RAM) Random-a
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On laptop computers and PDAs, the s
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Operating System An operating syste
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the spreadsheet software together w
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Exhibit 19.5 Pro forma sales and in
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Database Software A database is a c
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Internet e-mail addresses often con
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Personal Finance Software There are
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There are several different approac
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One of the major attractions of the
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While not a new version of the Web
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industrial revolution, and has occu
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Dummies Inc. has a series of books
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organization. This chapter is desig
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As technology has evolved, the term
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While the software mentioned earlie
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Most of the focus of the investor c
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Data Access and OLAP Before the lat
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Exhibit 20.5 illustrates a differen
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Productivity Tools Workers expect t
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Client-server technology is based o
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Today, most programmers write in C+
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Exhibit 20.6 is a model of a typica
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No treatment of relational database
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Online analytical processing (OLAP)
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server) and the rest on the users
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the other operational departments w
Page 587:
The world of business has changed d
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Chaffey, Dave, E-Commerce and E-Com
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According to the results of the sur
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understand the financial situation
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MBA graduates who are hoping to ent
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Summary Financial services opportun
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Let‟s begin with the “I left it
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MBA student: “Well, I go to [Grea
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Aiming for Your Goals For career ch
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Networking is generally regarded as
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Let‟s begin with some key assumpt
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like, or moving ahead in the compan
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Accrual accounting: An accounting m
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Cash flow: Cash that is spent or re
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Distribution channel: A chain of in
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Goodwill: As it relates to valuatio
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Management’s discussion and analy
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Ordinary annuity: An annuity that p
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Securities and Exchange Commission
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Vertical merger: A merger in which
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about activity-based costing progre
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Application systems ARPAnet Arthur
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Bell Labs Benefit measurement Beta
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goal orientation legal and contract
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segment information note share-base
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process of purpose of real world us
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uy/build decision capital budget in
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written resume Careers in corporate
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Cell Center for Research in Securit
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Compensation and ownership Competit
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Corporate culture Corporate debt in
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profit planning from an internal pe
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Data Data access and OLAP Database
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Askin Capital Management Barings Ba
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market approach publicly traded gui
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Electronic data interchange (EDI) E
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Extensible markup language (XML) Ex
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short term liquidity users and uses
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Fourth generation programming (4GL)
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Going private Going private transac
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Hypertext links Hypertext markup la
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Information technology and the firm
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International Accounting Standards
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Last-in-first out (LIFO) vs. curren
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Long call option payoff Longer-term
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Market risks Market size and struct
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Motivation to outsource Multiple IR
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Nonrecurring items defined disclosu
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Operational complexity Operational
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Outsourcing metrics Overhead Over-t
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Personal end game Personal expense
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Price competition Price decreases P
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Projected cash flow statements Proj
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Relevant range Relevant range assum
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Risk sharing Risk transfer Risk vs.
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Short call option payoff Short part
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Spot price Spreadsheet software Spr
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Summarizing nonrecurring items and
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acquisition the business dividends
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Timmon‟s Model of Opportunity Rec
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U.S. immigration quotas U.S. Intern
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discounting with discount rate form
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