Chapter Sixteen

1
Chapter Sixteen

• Financial Management
• and Securities Markets

2
Types of Current Assetsand Current Liabilities

• Cash
• Marketable securities
• Accounts receivable
• Inventory
• Accounts payable
• Wages payable
• Taxes payable
• Notes (loans) payable

• Current assets(Financial resources that can be
  converted to cash within a year)
• Current Liabilities(Short-term debt obligations
  that must be paid within a year)

3
Short-term InvestmentPossibilities for Idle Cash
Type of Security Maturity Issuer of
Security Interest Rate (March/02) Treasury
Bill 1 month Bank of Canada 1.99 Treasury
Bill 3 months Bank of Canada 2.01 Treasury
Bill 6 months Bank of Canada 2.27 Treasury
Bill 1 year Bank of Canada 2.88 Govt. of Canada
Bonds 2 years Govt. of Canada 3.70 Short Term
Deposits 30-59 days Banks, Trust and Loan cos.
0.90 1.90 Short Term Deposits 60-99
days Banks, Trust and Loan cos. 0.90 1.90
Short Term Deposits 90-119 days Banks, Trust
and Loan cos. 0.90 1.90 Fixed Term
Deposits 1 year Banks, Trust and Loan cos. 1.30
2.50 Fixed Term Deposits 2 years Banks, Trust
and Loan cos. 2.25 3.37
4
Bank Loans

• Line of Credit An arrangement by which a bank
  agrees to lend a specified amount of
  money to an organization upon request
• Secured loans Loans backed by collateral that
  the bank can claim if the borrowers do not
  repay the debt
• Unsecured loans Loans backed only by the
  borrowers good reputation and previous credit
  rating

5
Qualitative Assessment of Capital Budgeting Risk
Highest Risk
Add to a Product Line
16-5
Introduce a New Product inForeign Markets (risk
dependson stability of country)
Buy New Equipment foran Established Market
Expand into a New Market
Repair Old Machinery
Introduce a New Product ina Familiar Area
Lowest Risk
6
Types of Bonds

• Unsecured Debentures, or bonds, that are not
  backed by specific collateral
• Secured Bonds that are backed by specific
  collateral that must be forfeited in the
  event the issuing firm defaults
• Serial A sequence of small bond issues of
  progressively longer maturity

7
Types of Bonds

• Floating-rate Bonds with interest rates that
  change with current interest rates
  otherwise available in the economy
• Junk Special type of high interest rate bond
  that carries higher inherent risks

16-7b
8
The 30 Stocks in the Dow Jones Industrial Average
9
The Stocks in the TSE Index

• Abitibi-Consolidated Canadian
  Pacific Placer Dome
• Barrick Gold Canadian Tire Corp. Research
  in Motion
• Alcan Dofasco Inc. Royal Bank of
  Canada
• Bombardier Inc. Husky Energy Shaw
  Communications
• BCE Inc. Magna International Suncor
  Energy
• Bank of Montreal Inco Ltd. TELUS
• Bank of Nova Scotia National Bank of
  Canada TransAlta Corp.
• Biovail Nova Chemicals Corp. Teck Corp.
• Celestica Noranda Inc. TD Bank
• CIBC Nortel Networks Corp. Talisman
  Energy
• Canadian National Railway Nexen Thomson
  Corporation
• Petro Canada TransCanada Pipelines