FIN550_VIIII-I_discussion_the_future_of_corporate_finance

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VIIII-I Discussion: The Future of Corporate Finance. Reflect on everything that you have learned in the course. What macroeconomic variable do you think corporate financial managers should be preparing for in the next 5 to 10 years? What concepts and/or skills learned in this class will prepare you for the impact of this variable in your professional or personal life? Please explain and provide specific examples. In your response posts, provide additional suggestions for how the concepts and/or skills provided could be used in the real world. Reference appropriate sections of the textbook or other research to support your assertions.. According to (Bloomenthal, 2020) “A macroeconomic factor is an influential fiscal, natural, or geopolitical event that broadly affects a regional or national economy.” The phenomenal effect not limited to a select few but whather effects the population as a whole. (Bloomenthal, 2020) Examples of macroeconomic factors include economic outputs, unemployment rates, and inflation. (Bloomenthal, 2020) These indicators of economic performance are closely monitored by corporate financial managers as they affect the business ecosystem. The business ecosystem is a network of organizations that will include suppliers, distributors, customers, competitors. For a corporate financial manager looking to gauge at the economic health and stability of a sector, industry, and a country consumption spending for the next 5 to 10 years one of the key economic factors would be interest rates. The cost to borrow will reflect whather there is to much consumption are not enough consumption amongst other things. Economic data is tied into stock price. For example Tesla who tiker symbol is TSLA is traded on the US. NASDAQ at 1,348.12 times its earnings at 852.23 and a price to sales of 28.66. Such multiples suggest that Tesla stock is being bought with an expectation that the electronic car manufacture will grow as wel as the Electric Vehicle sector expedientially. 94 percent of Tesla revenue comes from selling cars “electric”. Current stock price to unit sell growth suggest that owners expect a 700 percent price return. Sell of Battery Electric Vehicles was expected to reach 1.9 million last year and is

forecasted per unit, globally, to reach 25.3 million by 2030 suggesting that the BEV industry’s CAGR “Compound Annual Growth Rate, of 29.5 percent over the next ten years. Therefore, to justify the expected triple digit return Tesla will have to maintain a 50 percent and more market share. The macroecomics factors that suggest this is not will not possible is the fall of fuel prices. There is also the price of Tesla vehicles. The average $35,000 – $124,000 before tax incentives. (news.energysage.com) There is market erosion due to competition. In 1Q 2020, Tesla produced a Return On Total Assets (“ROTA”) of only 0.8%, meaning that the company generated an operating profit of less than $0.01 over $1.00 of asset. The company used these assets to generate an operating surplus but the rates of return were just too low considering the amount of assets that the company owned. In reality, Tesla ROTA of 1% on a quarterly basis or 4% on a yearly basis, is way lower than the required rate of return demanded by the company’s debt holders. In 2019, Tesla paid about $685 million of interest expense on $13.4 billion of debts in the comapny balance sheet. The required rate of return on a yearly basis was about 5.1% using the 2019 data. In other words, Tesla borrowed at a much higher rate than the business could produce. References: Bloomenthal, A. (2020). Macroeconomic Factor. In, Economics; Macroeconomics . New York, NY. Dotdash publishing. Retrieved January 27, 2021, from: Investopedia.com, https://www.investopedia.com/terms/m/macroeconomic-factor.asp. Energysage.com. (2020). What are typical Tesla car prices? Model S, Model X crossover and Model 3 costs explained. In, News Feed . Retrieved February 5, 2021 from: Energysage.com, https://news.energysage.com/how-much-does-a-tesla-cost/#:~:text=Th e%20current%20Tesla%20car%20line,tax%20incentives%20for %20electric%20cars.

McKinsey & Company. (July. 2020). Automotive & Assembly Practice; McKinsey Electric Vehicle Index: Europe cushions a global plunge in EV sales, McKinsey’s recent analysis of global electric-vehicle markets shows both challenges and opportunities ahead. Retrieved February 5, 2021 from: Mckinsey.com, https://www.mckinsey.com/~/media/McKinsey/Industries/Automotive %20and%20Assembly/Our%20Insights/McKinsey%20Electric %20Vehicle%20Index%20Europe%20cushions%20a%20global %20plunge%20in%20EV%20sales/McKinsey-Electric-Vehicle-Index- Europe-cushions-a-global-plunge-in-EV-sales-vF.pdf? shouldIndex=false. Stockdividendscreener.com. (3 June. 2020). 2 Easy Ways To Measure Tesla Return On Investment. Retrieved February 5, 2021 from: Stockdividendscreener.com, https://stockdividendscreener.com/auto- manufacturers/tesla-return-on-investment/#:~:text=In%202019%2C %20Tesla%20paid%20about,5.1%25%20using%20the %202019%20data.&text=The%20snapshot%20above%20shows %20Tesla%27s%20interest%20expense%20of%20%24685%20million %20in%202019. Reply; I Hi Joel, injoyed reading your post, and I would just like to add to your income strategy. diversifying is smart, however there are tax consequences that an individual need to be of specifically capital gains tax. I would suggest to an individual who would want to divest in their company stock and create a diversified investment portfolio to do so by first crating a closely held corporation and wrapping it in a Qualified Subchapter S Trust (“QSST”) or Elect Small Business Trust (“ESBT”). After doing so the trust , the trust may

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qualify as an accredited investor under Rule 501(a)(7) of Regulation D “Qualified Purchaser”. The thresholds requirements for “Qualified Purchaser” are: 1. the trust owns assets having a value in excess of $5 million; 2. a “sophisticated person” directs the trust’s investments; and 3. the trust was not formed for the specific purpose of investing in the fund. A “Sophisticated person” Requirement. Under Rule 506(b)(2)(ii), a “sophisticated person” is any person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of a prospective investment. If the ESBT is determined to be a grantor trust the income of the S Corporation is taxed at the individual grantor level instead of at the trust level. In contrast S corporation income of a QSST is taxed to the individual income beneficiary, capital gain on the sale of the S corporation stock is taxed at the trust level. Reply; I Hi Jason! Annuity would create a stream of capital in the longterm. There is the Charitable Remainder Annuity Trust (CRAT). Beneficiaries receive a fixed income from the CRAT in the form of an annuity, which is typically calculated as a fixed percentage of the initial value of trust assets. The minimum annuity distribution value is 5%. CRATs last until the donor passes away, at which time any funds that remain in the trust are then donated to a charity pre-chosen. Have a great weekend! Shannon Kagan, J. (26 June 2020). Charitable Remainder Annuity Trust (CRAT). In, Wealth Trust & Estate Planning . New York, NY Dotdash publishing. Retrieved; January 29, 2021 from Investopdia; https://www.investopedia.com/terms/c/charitable-remainder-annuity- trust.asp. Reply; II

Hi Herman! Most company who have enbrased the mulitation model when it comes to hedging will use the spot market. I sure you know already know that the spot market is where financial instruments, such as commodities, currencies and securities, are traded for immediate delivery. And a non-spot, or futures contract is based on the delivery of the underlying asset at a future date. There is an example in our text explaining how a multi-national company such as Coca Cola will by currencys in certian countries to headge against declining interest rates which consequently may affect revenue. Have a great weekend! Shannon

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