SOURCES & USES OF SHORT-TERM & LONG- d.

If a company doesn’t perform well, the

TERM FUNDS stockholders absorb the losses

2 SOURCES OF FINANCING: PECKING ORDER HYPOTHESIS

● DEBT FINANCING - Borrowing from banks/ Developed based on repeated observations of
issuance of debt securities (commercial papers how companies fund their financing requirements.
& bonds); advances from stockholders to According to this hypothesis, this is how
expedite raising funds; creates a contractual companies fund their requirements:
obligation for the borrower to pay the interest ● Internally generated funds. These are the
and the principal. Payments must be made on funds that come from operating cash flows
time because unpaid interest and principal lead ● Debt. When internally generated funds
to penalties and more interest. Its benefits: have been exhausted, debt financing is
1. Interest expense is tax deductible the next alternative
2. Allows the company to grow w/o ● Equity. The last in the priority list of
diluting the interest of the controlling financing. This is not surprising given that
stockholders it is more difficult to issue new shares of
3. Creditors generally don’t intervene stocks.
in the decisions of the management
SOURCES AND USES OF SHORT-TERM
● EQUITY FINANCING/INTERNALLY FUNDS
GENERATED FUNDS - issuance of new
shares of stocks and retained earnings Short-term funds are normally used to finance the
ploughed back into the operations of the day-to-day operations of the company. It is used
company. It is the safest source of financing for for working capital requirements such as accounts
a company because it does not require receivable and inventories. It can also be used for
mandatory payments of dividends. If you own bridge financing where a company has some
enough shares of a company, you can end up maturing obligations and does not have enough
controlling its operating and financing cash to pay such maturing obligations. There are
decisions. Controlling stockholders defines the occasions when the management of a company
direction of the company because they can decides to borrow short-term loan to address this
choose who will manage the company; problem.
provides the company financial flexibility. This - Suppliers credit
means that if a company is 100% financed by - Advances from stockholders
equity or its leverage ratio is very low, it will be - Credit cooperatives
attractive to creditors. Therefore, when this - Bank loans
company is in need of financing, it can have - Lending companies
more options as regards financing. It can easily - Informal lending sources (5-6)
raise funds through debt financing or equity
financing or a combination of both. Its SOURCES AND USES OF LONG-TERM FUNDS
disadvantages: Long-term funds are used for long-term
1. Cash dividends are not tax deductible investments or sometimes called capital
2. Offering new shares to other investors investments, this includes expansion, buying new
may dilute the ownership stake in equipment, or buying a piece of land which will be
terms of percentage of the existing the site of future expansion. Long-term funds can
stockholders. also be used to finance permanent working capital
3. It is the most expensive source of requirements.
financing. At the onset, it does not - Equity investors
appear to be expensive because there - Internally generated funds
are no mandatory payments for - Banks
dividends. The following are the - Bond market
reasons to figure out that equity is - Lending companies
more expensive than debt financing.
a. Most companies opt to have debt
financing DUTIES OF BORROWER TO CREDITORS
b. Under PH Laws, a company which is in 1. Pay the creditors based in the payment
the process of liquidation cannot distribute schedule agreed upon
anything to the stockholders unless the 2. Provide the collaterals as agreed upon in
claims of the creditors have been satisfied the loan negotiation w/ proper
first. documentation, if necessary & if
c. Cash dividends are not guaranteed applicable
 3. Comply with the provisions of the loan Interest, in this example, is increasing per period
covenant such as maintaining certain because the principal is also increasing by the
liquidity and leverage ratios. amount of interest earned in the previous year.
4. Notify the creditor if the company is Under this assumption, the interest for every year
acquiring another company or the is no longer the same but is higher as it nears
company is now subject of acquisition. maturity. The total interest for the three-year
5. Do not default on the loans as much as period is 2,950.29. this is the sum of the
possible. increasing interest for three-year period.

BASIC LONG-TERM FINANCIAL CONCEPTS

(Simple & Compound Interest)

The Concept of Interest:

 The most basic finance-related formula is the
computation of interest. It is computed as
I=PxRxT
 (I = Interest • P = Principal • R = Interest Rate •
T = Time (Year))

SIMPLE INTEREST - interest earned/incurred

based on the original principal; Principal rate and
interest is fixed

For example, you invested 10,000.00 for 3 years

at 9% and the proceeds from the investment will
all be collected at the end of 3 years. Using a
simple interest assumption, interest will be
computed as follows.

COMPOUND INTEREST - The usual assumption;

simply earning interest on interest. This means
that the basis for the computation of the applicable
interest for a certain period is not only the original
principal but also any interest earned in the
previous period assuming all cash flows would be
paid or received in lump sum upon maturity.
MARKET STRUCTURE
Characteristics of the market significantly affect
the behaviour and interaction of buyers and
sellers. Things To Be Considered:
❖ Number and size of sellers and buyers
❖ Type of the product
❖ Conditions of entry and exit
❖ Transparency of information
BENEFITS OF MARKET COMPETITION:
● Innovation Entrepreneurship - ability to know what products
● High Quality Of Products and services are needed by people and to be able
● Low Prices to provide these things at the right time, at the
right place and to the right people, and
TYPES OF MARKET
Entrepreneurs assemble and then integrate all the
Pure (perfect) Competition resources needed -the money, the people, the
● Many and small sellers, so that no one can business model, the strategy—needed to
affect the market transform an invention or an idea into a viable
● Homogeneous product business.
● Free entry to and exit from the industry
● Transparent and free information CONTEMPORARY ISSUES THAT CONFRONT
ENTREPRENURS
Monopoly Competition
● A single seller: the firm and industry are INVESTMENT & INTEREST RATE
synonymous.  Investment is an asset or item acquired with
● Unique product: no close substitutes for the the goal of generating income or appreciation
firm's product. (increase in the value of an asset over time)
● The firm has control over the price because it  Invest To Earn A Return - purchase of new
can control the quantity supplied. plants, new equipment, new homes and net
● Entry or exit is blocked increases in inventories; Investing generally
● Big capital refers to using one's savings in a way that
● Cut-throat competition earns a return.
 Long-term investment - assets of the company
Monopolistic Competition which Include stocks, bonds and real estate.
 Multiple firms produce similar products Firms Long-term investments are assets that a
face down-sloping demand curves company intends to hold for more than a year.
 Profit maximization occurs where MC=MR  Invest in corporate stock - when corporations
 In the limit, firms compete away economic are formed they sometimes raise funds by
profits selling shares of ownership, or stocks to the
public. Investors purchase shares of corporate
Oligopoly Competition stock hoping to earn a return. Stockholders
 Few large firms: each must consider its rivals' may earn a return from their stocks in two
reactions in response to its decisions about prices, ways. They may receive a share of the
output, and advertising. corporation's earnings as a dividend payment
 Standardized or differentiated products or they may earn a capital gain it they sell their
 Entry is hard: economies of scale, huge capital stock for more than they paid for it.
investment may be the barriers to enter.  COMMON STOCK Shares of common stock
 Collude = increase price; Hoarding; CARTEL give their owners one vote per share when
important decisions are made for the firm.
APPLICATION OF DEMAND & SUPPLY These decisions include electing a board of
1. Prices of basic commodities (GDP - total of directors to oversee the firm's operations.
products and service that has been produced Owners of common stocks do not receive a
inside the country) dividend unless one is declared by the firm's
2. Philippine Wage Situation board of directors.
3. Labor Migration & The Overseas Filipino  PREFERRED STOCK Shares ot peened sMck
Workers do not give Mak owners a vote on how Me
4. Philippine peso and foreign currencies trading corporation is operated. They do. however.
with other countries provide a fixed dividend Mat is aqua. a
5. Housing Shortage & The Real Estate Boom in percentage ol the original sales price dem
The Philippine stock. A corporafion generally will pay this fixed
6. The increase in residential demand dividend each year unless it suffers a large
loss.
CONTEMPORARY ECONOMIC ISSUES THAT  INVEST IN CORPORATE BONDS loan that
CONFRONT ENTREPS entitles an Investor to be repaid at the specified
date and receive interest until that date.
Entrepreneurship is the art of turning an idea into Investing in corporate bonds involves less risk
a business. [Venture Capitalist, Fred Wilson] than buying stock in that firm because the
 bonds must be repaid whether or not the wage earners for the work performed during a
business earns a profit. SHORT- given period, which cannot be reduced by
 TERM INVESTMENT This is an Investment collective agreement or an individual contract.
which will mature to cash within a one-year
time and Is considered liquid. When someone MINIMUM WAGE LAW - establishes a minimum
invests in short-term stocks and bonds. the amount that an employer can pay a worker for one
thinking is that these assets can be cashed in day of labor.
quickly. An asset Is liquid if the owner can
readily access, and It has an established TAXES
market when prices cannot be manipulated by A mandatory financial charge or some other type
one buyer or seller. of levy imposed upon a taxpayer by a
1. These must readily be convertible to cash. governmental organization in order to fund various
2. Management must intend to convert re sell public expenditures.
the investment within 3 to 12 months.
Failure to pay, along with evasion of or resistance
INTEREST RATES to taxation, is punishable by law.
The interest rate is the amount a lender charges Taxes are considered inflows for the government
for the use of assets expressed as a percentage of and outflows for firms. The way a tax is imposed
the principal. The interest rate is typically noted on often is justified in the basis of one of two general
an annual basis known as the annual percentage principles: the benefits received and the ability to
rate (APR). pay.

Businesses take loans to fund capital projects and BENEFITS-RECEIVED TAX PRINCIPLE - taxes
expand their operations by purchasing fixed and to the benefits taxpayers receive from a public
long-term assets such as land, buildings, and good. For example, gasoline tax payments
machinery. increase the more people drive. The more people
drive, the more they benefit hem roads that the
Borrowed money is repaid either in a lump sum by gasoline tax finances.
a pre-determined date or in periodic installments.
The money to be repaid is usually more than the ABILITY TO PAY TAX PRINCIPLE - relates that
borrowed amount since lenders require those with a greater ability to pay are taxed more.
compensation for the loss of use of the money Income and property taxes usually rely on the
during the loan period. The lender could have ability to pay tax approach.
invested the funds during that period instead of
providing a loan, which would have generated At the national level, taxes are imposed and
income from the asset. The difference between collected pursuant to the National Internal
the total repayment sum and the original loan is Revenue Code, the Tariff and Customs Code, and
the interest charged. The interest charged is several special laws. There are 4 main types of
applied to the principal amount. national Internal revenue taxes: Income, Indirect
(value-added and percentage taxes), Excise and
RENTALS Documentary stamp taxes, all of which are
A property from which the owner receives administered by the Bureau of Internal Revenue
payment from the occupant(s), known as tenants, (BIR). At the local level, governments have some
in return for occupying or using the properly. autonomy to impose taxes on business and
ownership of real property.
Republic Act 9653/Rent Control Act of 2009, is the
law that protects housing tenants (especially in the CORPORATE INCOME TAXES The regular
lower-income class) against unreasonable rent corporate income tax (RCIT) is 30% on net taxable
increases. It also provides the eviction rules that income. There is a minimum corporate income tax
both landlords and tenants must observe. (MCIT) equivalent to 2% of gross income, which
applies beginning on the fourth year of commercial
CIVIL CODE OF THE PHILIPPINES - lease operation.
provisions that cover rentals above PHP 10,000
and those not covered by the Rent Control Act of WITHHOLDING TAXES - Most income is subject
2009, including commercial spaces and rent-to- to withholding of taxes. If the payor Is classified as
own units. a top-20.000 corporation or a top-5000 individual
engaged in business, It is required to withhold on
MINIMUM WAGE all payments for the purchase of goods (1%) and
This refers to the minimum amount of services (2%). Withholding taxes on income
remuneration that an employer is required to pay
subject to the RCIT are creditable against the
calculated liability.

INDIRECT TAXES - A 12% VAT is imposed on the

gross selling price on the sale, barter or exchange
of goods and properties, as well as on the gross
receipts from the sale of services within the
Philippines, including the lease of properties.

EXCISE TAXES - In addition to VAT, excise taxes

are imposed on the following: alcohol, tobacco,
petroleum products, automobiles, mineral
products, and non-essential goods such as jewelry
and precious stones, perfumes, yachts and other
sport vessels.

DOCUMENTARY STAMP TAX - for certain

documents, transactions or instruments specified
in the tax code when the obligation or right arises
from Philippine sources or when the property is
situated in the Philippines.

a.
b.
VOLCANOES - Considered active if they have
erupted in the last 10,000 years & have been
documented based on datable materials.
MAGMA – source material of volcanic eruptions.
LAVA – erupted magma

The greatest the viscosity is, the greater the

resistance to flow

2 TYPES OF VOLCANIC ERUPTIONS

 QUIESCENT ERUPTION – Highly fluid basaltic
lava; triggered by the arrival of a new batch of
molten rocks into the near-surface magma
chamber; can happen w/in a span of weeks,
months, years. Ex: Mt. Kilauea, Hawaii
 EXPLOSIVE – when the gas pressure under
the vent is released catastrophically; warning
signs are rising magma that meets the
groundwater which generates steam
explosions. Ex: 1991 Mt. Pinatubo explosion

VOLCANIC STRUCTURE:
 CRATER – opening at main vent
 CALDERAS – craters that are large circular
depressions greater than 1km in diameter.
 The cone of volcanoes is a product of
successive eruptions of lava & pyroclastic
materials coming from the vent.
 PYROCLASTIC MATERIALS – fragmenrs of
volcanic origin (volcanic ash & rocks like
pumice & obsidian)
 PYROCLASTIC FLOW – fast moving current of
hot gases & rock fragments that may occur
during an eruption
 LAHAR – from volcanic ash & rock fragments
that become saturated w/ water & move down
the slopes of a volcano.
 LAVA FLOW MATERIALS – primarily
composed of molten rocks that come from an
erupting volcano.

TYPES OF VOLCANOES:
 SHIELD VOLCANOES – produced by the
accumulation of fluid basaltic lava &
resembles a warriors shiled; from the ocean
floor as seamounts & can form volcanic
islands. Ex: Mauna Loa, USA
 CINDER/SCORIA CONES – Built from a
single, short-lived eruptive event ejecting lava
fragments that harden; can produce extensive
lava fields. Ex: Paricutin Volcano, Mexico
 COMPOSITE/STRATOVOLCANOES – in
Pacific Ring of Fire; large, nearly symmetrical
structure containing of alternating layers of
explosively erupted cinders. Ex: Mt. Fuji &
Mayon Volcano

HYDROMETEORLOGICAL PHENOMENA
 WEATHER – combination of temperature,
humidity, precipitation, wind, cloudiness, etc. ORIGIN OF LIFE ON EARTH
occurring in specific place & time.
 CLIMATE – long-term average pattern that Stage 1: Abiotic Synthesis of Polymers of
could be local, regional, or global. Nucleotides & Amino Acids
 Spontaneous generation - by Aristotle; life arise
TROPICAL CLIMATE TYPES (PH): from nonliving material if the material contained
pneuma (vital heat)

Th
e different climate types that occur throughout the
Philippines are under the influence of
Intertropical Convergence Zone (ITCZ), which is
an area of low pressure characterized by high
precipitation that marks the meeting point of the
trade winds.

 MONSOONS –
 Southwest monsoon (Habagat) • blows
in from May to September followed by  Urey-Miller Experiment: The Primordial Soup –
intermediate monsoon or inter-monsoon Stanley Miller & Harold Urey; the notion that
period from October to November when Earth was young, the oceans were filled w/
 Northeoit Monsoon (Amihon) • simple chemicals important for life; prebiotic
December to March
 Southeast Monsoon (Wotan) - Between
March and April
 TROPICAL CYCLONES
 Tropical depression — an area of low
pressure that is moving less than 61 kmh
 Tropical storm — more intense and has
wind speeds between 61 and 119kmh
 Typhoons/tropical cyclones - 120kmh
with rotary circulation
 Extraterrestrial Hypothesis - Meteorites, comets,
and asteroids sometimes reach the surface of
the primitive Earth which are thought to contain
organic carbon and brought Earth carbonaceous
chondrites and significant amount of amino acids
and nucleic bases; Prebiotic soup
Stage 2: Formation of organic Polymers on 11. Ecosystem — all the biotic (living) and
Clay Surface abiotic (nonliving) things in an area
- Formation of complex organic polymers such 12. Biosphere — the Earth
as DNA, RNA, or proteins from simple
molecules
EMERGENT PROPERTIES
John Bernal - proposed that synthesis of polymers  Order—organisms are highly ordered,
happened on solid surfaces like clay or in and other characteristics of life
evaporating tidal pools, and NOT on aqueous emerge from this complex
solutions, which may hydrolyze the polymers. organization.
 Reproduction - Life comes only from
RNA may have been formed on clay surface on life (biogenesis)
primitive Earth.  Growth and development — heritable
programs stored M DNA direct the
Stage 3: Formation of cell-like structures from
polymers enclosed by a boundary species-specific pattern of growth and
development
Prebionts or protobionts — describe the first living  Energy utilization — organisms take in
entities that evolved into living cells. and transform energy to do work,
including the maintenance of their
Characteristics of Prebionts/Protobionts: ordered state.
1. They have boundary structure that separated  Response to the environment —
the internal contents frorg, the environment
organisms respond to stimuli from
2. The polymers inside the protobiont contain
information
their environment
3. They have enzyme functions  Homeostasis — organisms regulate
4. They are capable of self-replication. their internal environment to maintain
a steady state, even in the face of
Stage 4: Evolution of cellular characteristics fluctuating external environment
through chemical selection  Evolutionary adaptation — life evolves
in response to interactions between
RNA organisms and their environment.
 first macromolecule of protobionts which can
store information and also capable of
replication
CELLULAR BASIS OF LIFE
 Perform enzymatic functions like acting as  Cell basic unit of life; organism's unit
ribozymes — enzymes that catalyze the of structure and function Lowest level
formation of different macromolecules in living of structure that is capable of
cells performing all the activities of life
 Prokaryotic cell — lacks a membrane-
UNIFYING THEMES OF LIFE: enclosed nucleus and membrane-
Life is organized by a hierarchy of different bound organelles. (archaebacteria and
levels from lowest to highest: bacteria)
1. Atom - smallest particle of an element  Eukaryotic cell — has a nucleus and
2. Molecule - two or more atoms bonded cytoplasm that contains all organelles.
together (protists, plant, fungi, and animals)
3. Cell - smallest unit of life
4. Tissue - group of similar cells
5. Organ — group of similar tissues working
together
6. Organ system - group of organs working
together
7. Multicellular organism — complete living
thing
8. Species — organisms that can reproduce
and produce a fertile, viable offspring
9. Population — group of same species
10. Community —all the species in an area