Professional Documents
Culture Documents
Rental Income, Adjustments of Rent Foreign Income and Miscellaneous Items, Taxes, Employee Compensation, Depreciation
Rental Income, Adjustments of Rent Foreign Income and Miscellaneous Items, Taxes, Employee Compensation, Depreciation
Chapter 2
Business cycles refer to the rise and fall of economic activity relative to its long-
term growth trend. Macroeconomics is the study of the economy as a
whole(national income, unemployment, inflation). Microeconomics studies
consumers, producer, and supplier.
The most common measure of the economic activity or output of an economy is
GDP
GDP includes all final good and services produced by resources within a country
regardless who owns the resources. Foreign company produce output in USA is GDP.
Nominal GDP(unadjusted) measures the value of all final goods and services in
prices prevailing at the time of production. Real GDP is adjusted changes in price
level.
Expansionary phase -> peck -> contractionary phase -> trough -> recovery phase
Recession occurs when the economy experiences negative real economic growth
and depression is long period of recession. Recession is defined as a period of falling
GDP so it can be caused by a decrease in A/S and decrease in A/D.
Leading indicators(before),lagging indicators(after),coincident indicator(during)
Multiplier effect: 1 dollar increase in government spending results in a greater than
1 increase in real GDP.
Economic measures: 1)unemployment 2)inflation 3)interest rate 4)real GDP
Two methods of measuring GDP: expenditure approach and income approach
Expenditure approach: GICE. Government purchase of good and service, Gross
private domestic investment, Personal consumption expenditures, Net exports
Income approach: IPIRATED. Income of proprietors, Profits of corporations, Interest,
Rental income, Adjustments of rent foreign income and miscellaneous items, Taxes,
Employee compensation, Depreciation.
Discount rate set by the federal reserve is the rate that the central bank charges for
loans to commercial banks.
Real interest rate= nominal interest – inflation rate
Inflation rate= ((cpi this period-cpi last period) / cpi last period) *100
Inflation rate measures the rate at which the overall price level increases.
Stagflation occurs when the economy suffers a recession that is characterized by falling output,
rising unemployment, and a rising price level.
The consumer price index measures the costs of a market basket of specific goods commonly
purchased by consumers. It measures consumer buying power and is not distorted by items
generally bought by industry.
GNP differs from GDP b/c GNP includes goods and service that are produced
overseas by U.S. firms.
Frictional unemployment: rotate job. Structural unemployment: not correspond skill,
don’t live where job is located. Seasonal unemployment: increase demand labor on
Christmas. Cyclical unemployment: resulting from declines in real GDP.
Full employment is no cyclical unemployment. Normal rate of unemployment
is adding all frictional, structural and seasonal unemployment.
Real GDP per capita is real GDP divided by population. Real GDP per capita is typically used
to compare standards of living across countries or across time. By dividing real GDP by
population, this measure adjusts for differences in the size of countries and for differences in
population over time.
CPI is a measure of the overall cost of a fixed basket of goods and service
purchased by an average household.
An increase in nominal wages represents an increase in input cost which will sift
supply curve to left.
Change in quantity demanded is a change in the amount of a good demanded
resulting solely from a change in price.
Change in demand is a change in the amount of a good demanded resulting from
a change in something other than the price of the good.
Change in quantity supplied is a change in the amount producers are willing and
able to produce resulting solely from a change in price.
Change in supply is a change in the amount of a good supplied resulting from a
change in something other than the price of the good.
Most to least competitive to least competitive: 1) perfect competition
2)monopolistic competition 3)oligopoly 4)monopoly
Under monopolistic competition, strategic plans include maintaining the market share (as with
pure competition), but they also likely include plans for enhanced product differentiation and
allocation of resources to advertising, product research, etc.
Any business firm that has the ability to control the price of the product it sells faces a
downward-sloping(oligopoly) demand curve for the firm. Only the firm in a competitive market is
a price-taker facing a horizontal demand curve(price taker) at the market equilibrium price.
Perfect(pure) competition: very competitive like selling bottled water. Price taker:
you take whatever you can get. Maintaining the market share and being responsive
to market conditions related to sales price.
Monopolistic competition: maintaining the market share and planning for enhanced
product differentiation.
Oligopoly: maintaining the market share, ensuring product differentiation, and
adapting to price changes or required changes in production volume.
Monopoly: price settler. You are the only seller so can set the price. Profitability from
production levels that maximize profits.
Review the handout
Inelastic: increase in price will result in an increase in total revenue.(demand<1.0)
Elastic: increase in price will result in an decrease in total revenue.(demand>1.0)
Unit elastic: increase in price will have no effect on total revenue(demand = 1.0)
Factors that affect the competitive environment of the firm: 1) barriers to market
entry 2) market competitiveness 3) existence of substitute products 4) bargaining
power of the customers 5) bargaining power of the suppliers
Price ceilings is a price that is established below the equilibrium price, which causes
shortages to develop
Price floors is a minimum price set above the equilibrium price, which causes
surpluses to develop.
Two major categories of business activities: 1) primary activities 2) support
activities.
Primary activities is advertising, deliver good, warranty
Support activities is procurement of material
Three major types of strategic frameworks that have been proven to be useful for
value chain analysis are industry structure analysis, core competencies analysis,
and segmentation analysis.
Vertical integration: firm may desire to improve its competitive advantage through
merge with supplier.
Transaction exposure: organization could suffer economic loss or gain upon result of
changes in the exchange rates.
Economic exposure: organization’s cash flows could increase or decrease as a result
of changes in the exchange rates.
Translation exposure: foreign subsidiaries will change as a result of changes in the
exchange rates when conversion of foreign f/s to u.s. $
Hedging is how we protect ourselves against the exchange rate moving in our
direction or against us.
Futures hedge: for A/P we can have futures hedge contract to buy the foreign
currency. For A/R we can have future hedge contract to sell the foreign currency.
Forward hedge: same as future hedge but must larger amount.
Money market hedge: uses international money markets to plan to meet future
currency requirements. Uses domestic currency to purchase a foreign currency at
current spot rates and invest them in securities timed to mature at the same time
as related payables.
Good example for money market hedge on p. 78
Transfer pricing: claim profits in country with lowest tax rate.
Chapter 3
Risk-indifferent behavior: certainty = expected return
Risk-averse behavior: certainty < expected return
Risk-seeking behavior: certainty > expected return
Diversification: reduce risk by mixing investment on different way.
Diversifiable Risk: non-market, unsystematic, not related to market DU NS
Nondiversifiable Risk: market or systematic risk, related to marketcannot
eliminate
Stated interest rate is the rate wrote on the contract. Effective interest rate is the
real interest rate you are paying after deducting fees.
Ex> borrow 100,000 from bank. Stated rate 9%. What is effective interest rate in
discounted note? Answer> discounted note is the note you pay interest in front
when you get the money. So 100,000*9%=9000(need to pay first). So you are
getting 100,000-9000=91,000. effective interest rate is 9000/91000=9.89%
Leverage is amplifies(확대) risk and potential return
Operating leverage: fixed or variable. Fixed is risk taker, pay people by salary.
Variable is not a risk taker, pay people by commission
DOL = percentage change in EBIT(Earnings Before Interest and Taxes)
percentage change in sale
Financial leverage: fixed or variable. Fixed: borrow money so risk and return goes
up. Variable: adding partner and SH so risk and return goes down.
DFL = percentage change in EPS
percentage change in EBIT
combined (total) leverage;
DCL = percentage change in EPS
Percentage change in sales
Inventory conversion period = average inventory / average cost of sales per day
Receivables collection period = days sales outstanding = average receivables / average sales per day
JIT(just in time): 1. lot size equal to one 2. insignificant set up times and costs 3.
balanced and level workloads 4. pull through system. JIT inventory model were
developed to reduce the lag time between inventory arrival and inventory use.
Minimize total inventory cost: EOQ
Chapter 4
Hash total and echo check is used for detective.
Chapter 5
Break-even analysis assumes that over the relevant rage: total FC same but FC per
unit change, VC per unit same but total VC change.
Flexible budget: provides budgeted numbers for various activity levels.
Benchmarking would be used by a company in comparing its financial data to
published information to determine if optimal. Benchmarking is the process often
used to identify standards that define or quantify critical success factors.
Metoer,DragonBall,ThunderGem,FurryGem,GlloryGem,MoonGem,RainBowGem,KylinGem