Abstract
In this document, we find answers to six questions about corporate finance based on the following subjects: The break-even point and the calculation of Net Income, The role of investment bankers, Why are the investment bankers fees lower for bonds than for stocks, Meaning of the risk-free rate and meaning of the beta, Role of the credit department, Options if the business needs more cash. Let us consider that two friends are opening up a business together. First, they must decide how much they need to sell in order to be profitable. They will be selling their products for an average of $45 per item. It costs them $20 to produce each item, and they have fixed operating costs of running the business at $82,000 per year. For their preliminary estimates, they will be borrowing $100,000 at an interest rate of 8% annually. We have to calculate how many items they would need to sell each year in order to breakeven at Net Income. Let us assume that depreciation is already included in the fixed operating costs and that the tax rate is 30%. Years later, the business is planning to sell their shares to the public. In order to help them, they will use the services of a small investment banking firm. In this context, we discuss the role of the investment bankers and the need to use them as well.
