BAR - Deck 2 Flashcards
Describe components and graph of mrkt equilibrium
- supply curve goes up
- demand curve goes down
- equilibrium price/qty is point where supply and demand meet
- price ceiling - horizontal line - if below equilibrium»_space;> shortage
- price floor - horizontal line - if above equilibrium»_space;> surplus
what happens to price elasticity of demand when there are many similar substitutes? when an item is a necessity?
many substitutes? price elasticity of demand will be high (aka a small inc or dec in price will have a large change in demand)
necessity? low price elasticity of demand
when does the supplier have the most control and influence over buyers?
when the supplier doesn’t face the threat of substitute products
supplier has mrkt power (like a monopoly)
what does the demand curve of a product represent?
reflects the impact the price has on the amt of product purchased
illustrates the max qty of a specific good that consumers are willing and able to purchase at each and every price
what does the supply curve measure?
measures max qty of a specific good that sellers are willing and able to produce at each and every price
relationships b/w goods
- substitute goods - as the price of one good increases, the demand for the other good increases
- independent goods - demand functions are not interrelated
- inferior goods - inferior goods experience a dec in demand when income levels rise
- complementary goods - demand fluctuates together
in microeconomic analysis are supply side inputs variable or fixed?
in the LR all supply side costs are variable
what are output and price ultimately determined by?
mrkt factors (supply and demand) and the power a firm has in the mrkt
perfectly inelastic supply & demand curves
perfectly inelastic supply curve is vertical (qty supplied doesn’t change regardless of changes in price)
perfectly inelastic demand curve is horizontal
formula for elasticity of demand
Elasticity of demand = % change in demand / % change in price
Describe SWOT analysis
Evaluation of internal and external factors contributing to an org’s success
Strengths and weaknesses»_space;> internal factors
Opportunities and threats»_space;> external factors
TOC - Theory of Constraints
evaluation technique for optimizing throughput time (does not relate to overall strategy evaluation)
Balanced scorecard review
summarizes measures of achievement of critical success factors, does not rep objective review of internal and external factors that may impact achievement of strategy
impacts of increased globalization on emerging mrkts
- more integrated w/ world mrkts
- less volatile
- decrease cost of capital
- increase their investment growth rates (more opportunities for investment)
Foreign Location Risks
Interest rate risk - relates to the fluctuation in value of an investment as a result of changes in interest rates
Commodity price risk - relates to mrkt values and future cash inflows that are affected by fluctuations in commodity prices
Principal risk - risk of losing an investment (money)
Country Risks
political, economic, transfer, sovereign, and exchange risks
comparative advantage
can produce at lower opportunity costs than another entity or country
goal of transfer pricing b/w parent and sub located in different locations
goal is to minimize amt of taxes paid by the overall organization
shifting more costs to country w/ highest tax burden will reduce profitability»_space;> reduced taxes owed
horizontal merger
when two companies operating in the same industry merge
vertical merger
if a company merges w/ one of its suppliers
circular combination
merging companies that appear to be in relatively unrelated industries
diagonal combination
comp engages in an activity integrated w/ a company that provides ancillary support for that primary activity
types of divestitures
sell offs - outright sale
spin offs - creates a new indep comp; stock div to existing shareholders or exchange for stock in parent comp; unit is less profitable or unrelated to core
equity carve-out - creating a new publicly listed comp (IPO); sale of shares of new comp»_space;> generate cash for parent; provides parent w/ controlling interest in sub
tender offers and purchase of assets
tender offer - contact shareholders directly and offer to buy outstanding shares at a premium to gain a controlling interest
purchase of assets - smaller company attempts to purchase one particular segment (and associated assets) from a larger company
formula for weighted avg cost of capital (WACC)
Weighted Avg Cost of Capital (WACC) = (cost of equity) X weight + (after-tax cost of debt) X weight
CAPM formula & definition of beta
CAPM =CAPM = risk free rate + beta X (mrkt return - risk free rate)
beta = indicator of how sensitive stock price is to systematic risk
impact on DE ratio and financial leverage when debt increases or equity decreases
DE ratio inc»_space;> inc in fina leverage
types of securities ranked by highest to lowest risk/return
commercial paper
negotiable CDs
Bankers acceptances
US Treas Bills
cost of PS
cost of PS = amt div paid / net proceeds (aka mrkt price - floatation costs)
Discount CF modeel
K = (D/P) + G
K = cost of RE
D = div expected per share
P = current mrkt stock price
G = constant growth rate in div
when is WACC lowest
when combo of after tax cost of debt and cost of equity are most favorable for firm
