BUSI 100 midterm

Equal transactions

benefit each other

Geographical proximity keeps people together even if controversial

Keep doing it if the relationship would benefit both sides

ex) Russia and Germany continuing to work together even though Russia is a bad guy

Foundations of trade

mutually beneficial

SMITH The natural advantages where one country focuses on what they have the advantage in it makes sense to trade with one another it makes more sense than to make what does not belong to their advantage

Each party has an absolute advantage

PLATO picks one thing to devote attention to and only produces that

Foundations of trade Plato and Smith

agree on the foundations of trade

Operation of the free market is essential not only to promote productive efficiency but to foster harmony and peace among the peoples of the world

Smith- intends only his security, industry in such a manner as its produce may be of the greatest value, he intends only his gain

Smith believes humans are never satisfied and humans always want more

Why do firms exist and in what form are they most likely to become successful

a firm should be able to find the cheapest, most productive goods and services by contracting them out in an efficient, open marketplace

Configurations of high-performance new ventures

Cofounder

Alliance partner

Employees

Benefactor- helps the company with nothing in return

Emotional support network

Serial founder

Product Expertise

Conflict triggers

frenzy

state or period of uncontrolled excitement or wild behavior

In his book, Walden, Thoreau argues that the eloquence of the orators' spoken language is the most powerful form of communication

false

what does freedman believe

Freedman believes that all companies just have the goal to make the largest profit

What's the purpose of a corporation

To benefit the shareholders

Martin bought an HIV drug and raised the prices by 1000%

He was able to do this because no one else could make it/sell it

How does this connect to our reading

it connects Friedman saying companies are in the business to make a profit when they should also consider the people buying them and their finances

Why did he do it though (Martin)

talked to customers, lowered the price for customers, and released a smaller bottle making it easier for hospitals to afford

And because shareholders like every other c company, and the shareholders are the ones who want maximized profits, by law shareholders go first

Closed system

Closed systems have firm boundaries between the organization and the outside environment

martins next steps

He's gonna keep doing it because that's what capitalist America is all about, it's not supposed to be anything it's about making the most money

Martin is a capitalist and so was a freedman

Maximize profit as long as you stay within the rules of the game

from an outsiders perspective on martin

Many ways to look at it, hate the government or Martin

Martin blames the government but individuals blame Martin

He owns it bc he can "multiply your money" but also bc he's a rich man

He has to be better than the next person if not he's out because the investors can remove him

What would Martin have done differently

He would've raised the price higher because he believes healthcare prices are inelastic which is

Wouldn't this eventually lead to inflation if everyone just did this

Accountability to the stockholder

fundamental to the integrity of capital markets. Accordingly, corporate governance mechanisms have been established to minimize the risk of fraudulent financial reporting.

Agent problem a friedman doctrine

the social responsibility of busi is to increase profits

The discussions are notable for their analytical looseness and lack of rigor

Only ppl can have responsibilities. A corporation is an artificial person and in the sense may have artificial responsibilities, but "business as a whole cannot be said to have responsibilities"

the social responsibility of busi is to increase profits

The discussions are notable for their analytical looseness and lack of rigor

Only ppl can have responsibilities. A corporation is an artificial person and in the sense may have artificial responsibilities, but "business as a whole cannot be said to have responsibilities"

doctrine of social responsibility

Present value vs net present value

Present value (PV) is the current value of a future sum of money or stream of cash flow given a specified rate of return. Meanwhile, net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Pacioli

ancient double-entry bookkeeping

Defoe

the complete English tradesman

What is Pacioli trying to accomplish by systematically arranging transactions by the debit and credit method?

Make everything easily accessible

Recognize each transaction at a glance, in terms of the value it creates

If we aren't keeping track of the rules, people can trick you ERRORS

What's the good advice and admonition?

get up and work, laziness, recognize every transaction at the time it occurred

Other than being tedious, what is another reason to highlight that tradespeople do not keep up in their books?

Seeing it fail, is bad news, and you don't want to perform sometimes it's easier to remain in ignorance

Afflicting process in them, too hard to know the truth

Performance, measurement

One of the most important pics in research is the distribution of annual net income (profits of businesses)

Most firms that are alive have to make a profit to keep being alive

No normal distribution

The value of a firm is always positive, but earnings can be neg or pos

How to go from neg to pos

Immediate stock reduction when they miss profit goals, then you do everything you can to make sure your company gets profits, gives incentives to companies to do fraud

Intro to Accounting

Take info from what is written and then add and subtract

Can't just look at cash though, think about what could be owed

Take transactions and put them into categories

Operating activities

related to the provision of goods or services and other normal websites

Investing activities

related to the acquisition or disposal of long-lived productive assets

Financing activities

related to wonders or creditors

Ex. cash flow from operations (rent, wages, customers)

Cash flow from investing (truck, CCI)

Cash flow from financing (stock, debt, off)

Parenthesis around a number in accounting means

negative number

Accounting income

Revenue

(Truck expense) by month, so subtract out the rest of the expenses that are more than one month

(rent)

(wages)

= net income (the number of millions said to maximize)

Revenue

the amount of total sales within a reporting period

Expenses

the "costs" incurred to generate revenues

Net income

revenues- expenses

Balancing sheet, financial position

Assets, liabilities, description

cash, 6000, cash in the bank 12/31/2022

Accounts receivable 30 cash owed by customers

Prepaid rent 22,000 prepaid for 11 more months (2k a month)

Truck, net 206350, 59 of the 60 months remain (3500/month)

Total 254500

Liabilities

debt

Assets

liabilities+stockholders equity

Carnegie

outcomes of capitalism

Carnegie believed in giving wealth away during one's lifetime

Carnegie boat picture

cartoon of a boat getting bigger and bigger and small boats staying small, however, Carnegie believed in more equitable distribution and that the smaller boats would also grow)

The poor enjoy what the rich could not before afford

human society loses homogeneity

Rigid castes are formed and as usual mutual ignorance breeds mutual distrust

To those who propose to substitute communism for this distance individualism, the answer is

the race has tried that. All progress from that barbarous day to the present time has resulted from its displacement

Carnegie: a proposed remedy

The problem of rich and poor is solved

The laws of accumulation will be left free, the laws of distribution free

Individualism will continue but the millionaire will be but a trustee for the poor: entrusted for a season with a great part of the increased wealth of the community, but administering it for the community far better than it could or would have done for itself

The man who dies thus rich dies disgraced

With the next step possible in our day and generation. It is a waste of our time to endeavor to uproot when all we can profitably accomplish is to bend the universal tree (don't waste time trying to end capitalism)

The key argument in Friedman's essay is that the manager is the ________ of the individuals who own the corporation and her primary responsibility is to them.

agent

The insider ownership % for most large firms in the us

0-10%

How does this reading from Ayn Rand relate to our prior readings from Plato and Adam Smith?

free markets, free trade, and government limited to protecting private property

How do they both view trade (rand and smith and plato)

money permits no deals except for those who permit something mutually beneficial

How does it relate Carnegie

Money is a living power that dies with no root

"So long as men live together on earth and need means to deal with one another- their only substitute, if they abandon money, is the muzzle of a gun"

She argues that "to make money" is the proudest distinction of Americans

Because no one else has used the world to make money, it always took money, money was static

How does this reading resemble with Alice in wonderland the Cheshire Cat

Which path do I take, which path do I take, doesn't matter, then any path will do

Money doesn't replace you as the driver, you need to spend some time thinking about what you want to do and where you want to go

How do we make decisions when they involve the exchange of varying amounts of goods at different points in time

One way to think about this is how much money would you have if you put your money into the bank (with interest)

Option 1 FutureV=PV *(1+r)

Option 2 PV=FV/(1+r)

How to estimate the future dividends is the hard part

R is hard to find out

35/(1.04)=33.65

35/(1.04)^2=32.36

25/(1.04)^3=31

Sum up all payment

Net present value

present val-investment

Rule: if NPV is less than 0 don't invest, if it's greater than 0 then invest

The theory of investment value (john burr Williams)

Wanted to find what caused the Wall Street crash of 1929

Suggested the question of the intrinsic value of a common stock for which Williams personal experience and background would serve him in good stead

"Let us define the investment value of a stock as the present worth of all the dividends to be paid upon it. In short, a stock is worth only what you can get out of it"

Ayn Rand "money is a living power that dies w out its root. Money will not serve the mind that cannot match it"

Andrew Carnegie

andrew carnegie argues that the law of competition has resulted in several economic outcomes. which of the following outcomes does he not include

the living conditions of the apprentice and the master are made more equal

in 1970, andrew carnegie wrote an influential article in the New York Times arguing "there is one and only one social responsibility of business- to increase its profits without deception or fruad

false

a friendman doctrine

the social responsibility of business is to increase its profits

main importance/idea of thoreau life in the woods

Self-Reliance, Simple-Living, humans are immortal when dealing with the truth, important books are dead, you have an imperfect knowledge of history if you havent read ancient classics

main idea of the republic by plato

attempted to design an ideal society and government that were free of injustice and conflict

text that describes the importance of being just in the world, and by being just, one is happy.

main idea of wealth of nations adam smith

Free market and the invisible hand. A free market is an economic system with little to no government interference. The invisible hand is the idea that people's self-interest helps them make decisions that benefit themselves, and in the long term, society.

main idea of a friedman doctrine: the social responsibility of business is to inc

a company has no social responsibility to the public or society; its only responsibility is to its shareholders

main idea of wealth by andrew carnegie

argued that extremely wealthy Americans like himself had a responsibility to spend their money in order to benefit the greater good. In other words, the richest Americans should actively engage in philanthropy and charity in order to close the widening gap between rich and poor.

The poor enjoy what the rich could not afford before

main idea of atlas shrugged ayn rand

Money is a tool of exchange, men who wish to deal with each other must trade and create value, a man's mind is the root of all production, no deals except for the mutual benefit, money does not buy you happiness and does not give you values, a man who damns money obtained it dishonorably

main idea of the theory of investment value by john burr williams

earnings are only a means to an end and the means should not be mistaken for the end. Therefore, we must say that a stock derives its value from its dividends, not its earnings.

if a man buys in means of investment, he holds income, all prices depend on someones estimate of future income

main idea of pacioli ancient double entry bookkeeping

codification and dissemination

idea that every financial transaction has two equal and opposite effects, debit and credit

assets=Liabilities+equity

main idea of complete english trademans by Daniel Defoe

importance of tradesmen, keeping proper financial records

the necessity of keeping books, keep a daybook, ledger, and cash bool, regular bookkeeping, balancing accounts to ensure accuracy, use of abbreviations, casting up the shop (calculating the total profit of loss of the busi), preventing fraud of theft.

main idea of principles of political economy John Stuart Mill Chapter XV: of profits

labors share of produce- share of the capitalist

possession of a capital enables a person to make what a person is willing to pay for a loan of it= interest

lowest rate of profit to exist= abstinence, risk, exertion

baggage (riches) is to an army, as is riches to virtue

pluto: riches come from the devil

main idea of souls of black folk W.E.B Du Boisthe

legacy of racism and its deleterious effects on the lives of Black people. Certain consequences of racism and discrimination were clear - separate spheres of life, physical abuse, paternalism, and economic disenfranchisement.

main idea of the art of war by sun tzu chapter 1

Warfare relies on deception. Armies should seem strong when they are weak and unprepared when they are ready to fight. If evenly matched, opponents must remain prepared; when overmatched, they must avoid conflict.

main idea of the art of war by sun tzu chapter 2

War must be dealt with efficiently—prior planning and plundering when in enemy territory should rule out the need to train new men or any wasting of resources. This makes for an all-round victory, as the home state is not overburdened or weakened by supporting the war effort for an extended time.

main idea of the art of war by sun tzu chapter 3

Master Sun says it's better to conquer a state and keep it whole than raze it to the ground. It is also better to keep the enemy's men alive. True greatness comes from winning wars without even fighting. The greatest form of fighting is to attack strategy, and second best is to attack alliances.

main idea of the art of war by sun tzu chapter 4

Public heroes win through difficulty, but wise generals plan carefully and win with ease. They do so by being impossible to defeat and then taking advantage of the enemy's mistakes.

main idea of the art of war by sun tzu chapter 5

It is all about potential energy. By themselves, the men could not defeat the enemy, but the general knows the situation to put them in that will harness their natural characteristics. In this sense, the men can be neither praised nor blamed for their success nor defeat, as it is the general marshalling their movement

main idea of the art of war by sun tzu chapter 5

Having to defend creates weakness, whereas making the enemy have to defend creates strength. If the general knows the time and place of attack, even after marching hundreds of miles the army will be prepared. But if he does not know, no part of the army can help another. It is worse if the troops are separated.

The cococola company saw a 5% decline in one day. Why?

Bc walmart saw decreased demand in snack foods bc of the weight loss drug ozempic

According to john burr williams, what do all prices ultimately depend on

Someone else's future income

"Let us define the investment value of a stock as the present worth of all its dividends to be paid upon it. In short, a stock is worth only what you can get out of it."

Take away- earnings are only a means to an end, and the means should not be mistaken for the end. Therefore, we must say that a stock derives its value from its dividends, not its earnings → focus on when you're going to get your money back

Capital structure: debt and equity

Q: Last month, Professor Hendricks highlighted one of his research papers that indicated a common configuration of successful solo-founded startups is to have a benefactor who helps the startup overcome obstacles without the expectation of receiving anything in return. Would Bacon or Mill expect lenders and investors to behave in this manner?

Bacon- it is a vanity to conceive that there would be ordinary borrowing without profits, and it is possible to conceive the number of inconveniences that will ensue if borrowing be cramped. Therefore to speak of abolishing usury is idle (allow profit to exist otherwise people won't lend)

Mill- "if he embarked in busi on his own account, he always exposed his capital to some, and in many cases to very great danger of partial or total loss. For this danger he must be compensated, otherwise he will not incur it. He must likewise be remunerated for the devotions of his time and labor."

Debt

borrowing

Equity

selling part of your company

Source of funds

Debt: banks, bondholders

Equity: busi partners, employees, venture capitalists, shareholders

Future payments

Debt: must pay principle and interest

Equity: may pay dividends. Any dividends to yourself must be shared with others

Rights

Debt: none, unless the firm is bankrupt. Although, debt contracts may include various covenants

Equity: voting rights

Priority

Debt: senior

Equity: junior

Du bois: the souls of black folk

"The problem of the 20th century is the problem of the color line- the relation of the darker to the lighter races of the men in asia and africa, in america and the islands of the sea."

You will want to and will study something when your are actually interested in it and know its worth your time

Let us turn our faces to the black belt of ga and seek simply to know the condition of the black farmers of one country there. The key note of the black belt is debt, not commercial credit, but debt in the sense of continued inability on the part of the mass of the population to make income cover expenses. This is the direct heritage of the south from the wasteful economics of the slave regime; but it was emphasized and brought to a crisis by the emancipation of the slaves

After emancipation, the lives of former slaves got much worse

The value of farms decreased