finance_session_2_the business, tax and financial environment [compatibility mode]

8/12/2019 Finance_Session_2_The Business, Tax and Financial Environment [Compatibility Mode]

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Session 2

The Business, Tax, and Financial

Environments

00677 FINANCE AN IN!EST"ENT #"TE$% #A%

Mr. Bishwajit Banik PathikAssistant &ro'essorAmerican International (niversit)*Ban+ladesh

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hat is Financial "ana+ement- .&revious/

Concerns the acquisition, financing, and management

of assets with some overall goal in mind.

The three major decisions of financial management are

Investment ecision !inancing ecision

"sset #anagement ecision

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The oal o' a Firm .&revious/

$rofit #a%imi&ation '$#(

#a%imi&ing a firm)s earnings after the ta%

$# Increasing no. of *hare 'invest in +an( ut $*

Increasing arnings $er *hare '$*(

$* / 'arnings after the ta%(0'um+er of share(

alue Creation 'considering +oth conditions(

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The Financial "ana+er1s ole .&revious/

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Firm Ca3ital"ar4etFinancial"ana+er

!und aisingInvestment to value

enhancing 5roject

#anage funds generated

+6 o5erations

eturn funds to

Investors as dividends

einvestment


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h) do )ou need to stud) 'inancial

mana+ement- .&revious/

usinesses are reducing management jo+s and

squee&ing together the various la6ers

The successful manager will need the a+ilit6 to move

not just verticall6 +ut hori&ontall6 as well

To start a new com5an6, entre5reneurshi5, taing

investment decision etc.

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To3ics

asic forms of +usiness organi&ation

*ole $ro5rietorshi5s, $artnershi5s, Cor5orations, 8imited

8ia+ilities Com5an6 '88C(

e5reciation

*traight 8ine e5reciation, ou+le eclining alance e5reciation

!inancial #arets#one6 vs. Ca5ital #aret, $rimar6 vs. *econdar6 #aret

!inancial intermediaries

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The Business 5r+aniations

4 +asic forms of +usiness organi&ation are

*ole $ro5rietorshi5s

$artnershi5s

:eneral $artnershi5

8imited $artnershi5

Cor5orations

8imited 8ia+ilities Com5an6 '88C(

;

Sole &ro3rietorshi3

*ingle


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&artnershi3

" +usiness form in which two or more

individuals act as owners

o se5arate income ta%

:reater amount of ca5ital can +e raised

#a6 attract more investors

>

&artnershi3 .cont/

:eneral $artnershi5?

@nlimited 8ia+ilit6 'eath of a $artnerA(

8imited $artnershi5?

:eneral $artner '@nlimited 8ia+ilities(

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8imited $artner 'investor(

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Cor3orations

" +usiness form legall6 se5arated from its owners

"dvantages?

as6 transfer of ownershi5

@nlimited life

"n a+ilit6 to raise large sums of ca5ital


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Tax Environment: e3reciation

*6stematic allocation of the cost of a ca5ital asset over

a 5eriod of a time for financial re5orting 5ur5oses, ta%

5ur5oses or +oth.

e5reciation is

The 5ortion of asset which is used

"n e%5ense

*how higher de5reciation to save more ta%

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e3reciation .cont/

*traight 8ine e5reciation

" method of de5reciation that allocates e%5enses evenl6 over

the de5recia+le life of the asset

"ccelerated e5reciation

#ethod of de5reciation that write off the cost of a ca5ital

asset faster than under straight-line de5reciation

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Bou9le eclinin+ Balance e3reciation

/ m '10n(

m / 2

n / life s5an of the asset

/ asset)s net +oo value

!or a T. 1B,BBB asset, with a five-6ear life, the de5reciation for thefirst 6ear is

2'107(1B,BBB / T. 4BBBThe de5reciation charge in the 2nd 6ear is +ased on the net +oovalue of t. 9BBB is

2'107(9BBB / T. 24BB

B "ethod is also 4no;n as 200 < declinin+ 9alance

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Financial "ar4ets

"ll institutions and 5rocedures for +ringing +u6ers and

sellers of financial instruments together.

#one6 #aret

It is concerned with +u6ing and selling of short term 'lessthan 1 6ear( government and cor5orate de+t.

Ca5ital #aret

It deals with relativel6 long term 'more than 1 6ear( de+t 'e.g.

stocs(

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Financial "ar4ets .cont/

$rimar6 #aret

" maret where new securities are +ought and sold for the

first time

!unds are raised through the sale of new securities 'first

time(

*econdar6 #aret

" maret for +u6ing and selling of e%isting securities

rather than new issues

These transactions do not 5rovide additional funds to

finance ca5ital investment

1;

Financial Intermediaries

!inancial institutions those acce5t mone6 from savers

and use those funds to mae loans and to mae other

financial investments in their own name.

%am5le Commercial ans

*avings institutions

Insurance com5anies

!inance com5anies

1=


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Theoretical =uestions

Dhat is the 5rinci5le advantage of the cor5orate form of

+usiness organi&ationE iscuss the im5ortance of this

advantage to the owner of a small firm.

Dhat are the disadvantages of

'a( a sole 5ro5rietorshi5E

'+( a 5artnershi5E

'c( a limited lia+ilit6 com5an6 '88C(E

iscuss the financial intermediaries.

Dhat is de5reciationE Fow does it affect the ta%E

1>

e'erences

James C. an Forne and John #. Dachowic&, Jr., GFundamentals of

Financial ManagementH, $earson ducation 8imited, sse%, ngland, 13th

d., 2BB=. I* >;=-B-2;3-;1393-B

ugene !. righam and Joel !. Fouston, GFundamentals of Financial

ManagementH, *outh-Destern Cengage 8earning, #ason,

finance_session_2_the business, tax and financial environment [compatibility mode]

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