Tag Archives: Finance

## Managerial #Economics ~ Understanding #MRTS the Fun Way!

12 Jun

As always, this lesson is not intended to be professional advice. This is simply lesson material for ESL students in a Managerial Economics and Finance class. Posted here for their use or for helping other students.

## PART 1 – Key Words

1. Quantity (量) ~ How many products = Q (# of  🚗)
2. Labor (员工) ~ The Number of Workers = L (👱)
3. Capital (资金) ~ The Money (\$\$) we need = K (💲)
4. Change (变化) ~ How much did the # change? = Δ(🔺)
5. Marginal (边际成本) ~ Result if you add ONE MORE (+1) Q
6. Rate (比率) ~ Ratio
7. Substitution (取代) ~ XK = 1L (Substitution asks “what is X?”)
8. Input (输入) ~ All the resources you put into a product.
1. Ice Cream 🍦has many inputs:
1. Milk🥛
2. Eggs🍳
3. Sugar
4. Ice
5. Salt
6. Chocolate Sauce
9. Output (产量) ~ The product you create
1. Ice Cream 🍨🍦is the output!

## Part 2 – The Relationship Between L, K, and Q

Every product (产量) can have lots of inputs (输入), just like the Ice Cream 🍦 or a Car 🚗.

Input + Input + Input + Input = Output (🚗)

But in our class, we focus on TWO inputs: Labor (👱) and Money (💲)

👱+💲=🚗
Labor (👱) + Money (💲) = Quantity (🚗)
L (👱)+ K (💲)= Q(🚗)

Example:
Justin sells 200 cars 🚗every day. Not 201 cars. Not 199 cars. He sells EXACTLY 200 cars 🚗every day.

L (👱) + K (💲) = 200 cars (🚗)

Justin knows that in ONE DAY🔆:

• 1 worker 👱 can create 50% of a car 🚗~ 2 workers 👱👱can create 100% of a car 🚗(one car)
• 1L = 0.5Q 🚗
• 2L = 1Q 🚗
• \$5 💲 can pay for 20% of a car 🚗~ \$25 💲can pay for 100% of a car 🚗(one car)
• 1K = 0.2Q 🚗
• 5K = 1Q 🚗

Rule #1 ~ If Land K ⬆, then the # of 🚗 cars will also ⬆

Rule #2 ~ If Land K ⬇, then the # of 🚗 cars will also ⬇

Rule #3 ~ If L ⬇  and the # of 🚗 cars is still 200 (stay the same), K must ⬆

Rule #4 ~ If K ⬇  and the # of 🚗 cars is still 200 (stay the same), L must ⬆

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Today, Justin looks 🤔at his Money 💲and is NOT happy😭. He thinks he spends TOO MUCH money😡!  He wants to buy a new bicycle🚲, so he decides to SAVE \$100 💲

This means today:

👱L + (💲K – 💲100K) = ? Q🚗

WHAT IS THE NEW Q (number of cars🚗) that Justin Makes Today?

Day 1 (Yesterday): 👱L + 💲K = 🚗200Q

Day 2 (Today): 👱L + (💲K – 💲100K) = 🚗200Q – all the 🚗cars \$100K would pay for.

Remember!  💲1K = 🚗0.20Q (one dollar pays for 0.20 cars in a day)

If Justin does not spend \$100 today, he will lose the money for 20 cars!

1K = 0.20 cars
💲-100K = -20 cars🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗🚗

ANSWER: Justin makes 180 cars today!

L + (K – 100K) = 200 cars – 20 cars
= 180 cars🚗

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OK?!?🤔

NO!!!  😡Remember –> “Justin sells 200 cars 🚗every day. Not 201 cars. Not 199 cars. He sells EXACTLY 200 cars every day. ”

PROBLEM:  How can Justin still make and sell 200 cars tomorrow if he still saves the \$100 (-100K) as today.

### Rule #4 ~ If 💲K ⬇  and the # of 🚗 cars is 200 (the same), 👱L must ⬆

QUESTION: HOW MUCH should 👱L  go up (⬆)?

• Step 1 ~ How many extra cars 🚗does Justin need to make? ~ Justin can make 180 cars right now if he saves \$100 (-100K) but L stays the same as yesterday.

200 🚗 – 180 🚗= 20🚗
Justin needs to make
👱L ⬆ enough to make 20 extra cars🚗 tomorrow.

• Step 2 ~ How much L does Justin have to add (+) to make 20 more cars tomorrow?

?L + (K – 100K) = 200Q

Remember,

👱1L = 0.5Q 🚗 | 👱👱2L = 1Q 🚗
20Q 🚗= 40L

ANSWER: Justin will have to hire 40 workers (+40L) in order to make 20 more cars tomorrow.

👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫👫

# FINAL SOLUTION

*Substitution = Adding L to Decrease K

(👱L + 👱40L) + (💲K – 💲100K) = 200 Q (🚗)

## Part 3 ~ MRTS

MRTS = Marginal Rate of Technical Substitution

Go Back to Part 2.

• 🔺K💲
• Tomorrow, Justin has -100K💲
• 🔺K = -100K💲
• 🔺L👱
• Tomorrow, Justin has +40L👱
• 🔺L = +40L👱

MRTS = 5K : 2L |5💲 : 2👫

This just tells us:

1. For every 2 👫workers Justin has, he spends \$5💲💲💲💲💲.
2. For every 1 👱worker Just has, he spends \$2.50💲💲½
3. If Justin wants to hire 1 worker (+1L) , he will save \$2.50 (-2.50K)
4. I Justin wants to save \$40 (-40K), he must hire 16 workers (+16L)

MRTS shows how much L👱 can be a substitute for K💲!

## #Business Vocabulary ~ #Economies of Scope and Scale

27 May

As always, this lesson is not intended to be professional advice. This is simply lesson material for ESL students in Business, Economics, and Finance classes. Posted here for their use or for helping other students.

Unlike Short-Term (短期) Planning, Long-Term (长期) operates on different goals (目标), strategies (战略), and analyses (分析).

Two common goals are very important: Economies of Scale and Economies of Scope. Continue reading

## Important #Business Symbols ~ Asian #Currencies

15 May

As always, this lesson is not intended to be professional advice. This is simply lesson material for ESL students in Business, Economics, and Finance classes. Posted here for their use or for helping other students.

Here are some helpful Business Symbols (标志) you should be familiar with for Business English! Although there are some more common than these, you should memorize these symbols because they are the currencies for Asia.

 ৳ Bangladesh (孟加拉国) Taka (BDT) Nu Bhutan (不丹) Ngultrum (BTN) ៛ Cambodia (柬埔寨) Riel (KHR) ¥ China (中国) Yuan or Renminbi (CNY) ¥ Japan (日本) Yen (JPY) ₹ India (印度) Rupee (INR) Rp Indonesia (印度尼西亚) Rupiah (IDR) ₭ Laos (老挝) Kip (LAK) RM Malaysia (马来西亚) Ringgit (RM) Rf Maldives (马尔代夫) Rufiyaa (MVR) ₮ Mongolia (蒙古) Tögrög (MNT) K Myanmar (缅甸) Kyat (BMK) रू Nepal (尼泊尔) Rupee (NPR) ₱ Philippines (菲律宾) Peso (PHP) ₽ Russia (俄国) Ruble (RUB) ₩ South Korea (韩国) Won (KRW) රු Sri Lanka (斯里兰卡) Rupee (LKR) NT\$ Taiwan (台湾) New Dollar (TWD) ฿ Thailand (泰国) Baht (THB) ₫ Vietnam (越南) Dong (VND)

## Understanding Compound Interest

14 Jun

As always, this lesson is not intended to be professional advice. This is simply lesson material for ESL students in a Managerial Economics and Corporate Finance class. Posted here for their use or for helping other students.

## Corporate Value (值)

Financial officers and Managers are extremely responsible for the monetary (货币) goings-on in their companies. As we said before, the Wealth Maximization Rule means that Financial and Corporate Managers are required to maximize (最大化) the profits (收益) for their investors (投资者).

However, maximizing profits requires in-depth (深入)planning and micro-managing (微观) your funds today while considering (考虑) future profits as well.

There are two types of Value (值) that you should be aware of in Finance and Economics.

The first is called Present Value (现值) and is the value today of something that will increase in value in the future. ExampleWhen we loan someone \$1,000 at 10% interest, we know that our \$1,000 loan will increase in value in the future. Present Value = PV.

The second is called Future Value (未来价值) and is the value that the item will have in the future. Future Value = FV.

## Interest (利)

I’ll make another post later discussing the many ways to use Present and Future value in your company, but today I just wanted to talk about using them to calculate (计算) “Compound Interest” (复利).

Usually, when we loan money to someone or invest (投资) our money in something, we do so on the condition that we receive back more money than we put in.  Our corporation is not a charity (慈善机构), we don’t loan you things for free!  The original money we invest is called the Principal (本息).  The extra money we get on top is called the Interest (利).

Example ~ Company A (a large global corporation) invests \$100,000 in a small new business called Company B.  Company B has 10 years to pay it back. But Company A doesn’t do this for free ~ they want to maximize their profits too. That means they have to make some money on this contract (合同).  So they ask Company B to pay an additional 7% per year.

\$100,000 = Principal
7% = Interest

## COMPOUND INTEREST (复利)

Problem! ~ 7% of what?
Answer! ~ It depends   It depends on how Company A decides to count it.

There are two separate mathematical formulas (数学公式) you can use to figure out the Interest.

The first one is called Simple Interest (单利) and I’ve already looked at it before.

The second method is called Compound Interest (复利). Compound Interest says that each payment period, Company B is going to pay an additional 7% of the currently owed principal! Lenders and Investors really like compound interest a lot better than simple interest.

For example: I borrow \$1000 due in two years.  My interest rate is 10%.

If I use Simple Interest:  Year 1, I owe \$1000 + 10% interest = \$1100.  Year 2, I owe \$1100 + (10% of \$1000) = \$1200. 🙂

If I use Compound Interest: Year 1, I owe \$1000 + 10% interest = \$1100.  Year 2, I owe \$1100 + (10% of \$1100) = \$1210

The formula for Compound Interest is:

$I = P(1+r) ^{nt} - P$

I = Interest
P = Present Value
R = Interest Rate
T = Number of Years Involved
N = Number of Times a Year

### Example

Company A (a large global corporation) invests \$100,000 in a small new business called Company B.  Company B has 10 years to pay it back. The interest rate is 7% compounded  bi-annually.   What is the Total Interest (利) you will pay over 10 Years?

$I = P(1+r) ^{nt} - P$

$I = 100,000 (1 + .07) ^{(2)(10)} - 100,000$

$I = 386,968.446 - 100,000 = 286,968.45$

## Calculating FUTURE VALUE and PRESENT VALUE using COMPOUND INTEREST

The total interest is of course important to both Company A and Company B, there are two other important numbers that the financial managers of Company A want to know–the Present Value of their money and the Future Value of their money.

### Future Value

$FV = P(1+r)^{nt}$

FV = Future Value (how much money you will make in total)
PV = Present Value

R = Interest Rate
T = Number of years involved
N = Times per Year

Using our example above with Company A & B, the Future Value is calculated like this:

$FV = 100,000 (1+.07)^{(2)(10)}$

$FV = 386,968.46$

That means Company A will make a total of \$286,968.46 if they invest their \$100,000 in Company B now. Over 10 years, their \$100,000 will change into \$386,968.46. We like this plan!

### Present Value

Sometimes, for example with bonds (债券), we know the Future Value (how much money will be paid to us in the end). But we don’t know how much money has to be invested (Present Value) to get that future result.  So Present Value is calculated by the formula:

$PV = \frac{FV}{(1 + r)^{nt}}$

PV = Present Value
FV = Future Value

R = Interest Rate
T = Number of years involved
N = Number of Times per Year

Example: Mary Jane knows that in 4 years, she needs to have a total of \$150,000 to pay her college tuition. She has an interest-generating account that gives her a 4% compound interest rate bi-annually on everything she puts in. How much money should she invest today (Present Value) in order to have \$150,000 in 4 years?

$PV = \frac{150,000}{(1 + .04)^{(2)(5)}}$

$PV = \frac{150,000}{1.48024428} = 101,336.67$

That means that Mary Jane needs to put \$101,336.67 in her bank account now in order to get \$150,000 in the future.

## KEY TERMS TO REMEMBER

1. Value (值)
2. Present Value (现值)
3. Future Value (未来价值)
4. Interest (利)
5. Simple Interest (单利)
6. Compound Interest (复利)
7. Principal (本息)
8. Monthly (每月一次)
9. Weekly (每周)
10. Annually (每年)
11. Bi-Annually (一年两次)
12. Quarterly (季刊)

## FORMULAS TO REMEMBER

### Compound Interest

$I = P(1+r) ^{nt} - P$

### Future Value

$FV = P(1+r)^{nt}$

### Present Value

$PV = \frac{FV}{(1 + r)^{nt}}$

## Understanding Simple Interest

6 Jun

As always, this lesson is not intended to be professional advice. This is simply lesson material for ESL students in a Managerial Economics and Corporate Finance class. Posted here for their use or for helping other students.

## Corporate Value (值)

Financial officers and Managers are extremely responsible for the monetary (货币) goings-on in their companies. As we said before, the Wealth Maximization Rule means that Financial and Corporate Managers are required to maximize (最大化) the profits (收益) for their investors (投资者).

However, maximizing profits requires in-depth (深入)planning and micro-managing (微观) your funds today while considering (考虑) future profits as well.

There are two types of Value (值) that you should be aware of in Finance and Economics.

The first is called Present Value (现值) and is the value today of something that will increase in value in the future. ExampleWhen we loan someone \$1,000 at 10% interest, we know that our \$1,000 loan will increase in value in the future.  Present Value = PV.

The second is called Future Value (未来价值) and is the value that the item will have in the future. Future Value = FV.

## Interest (利)

I’ll make another post later discussing the many ways to use Present and Future value in your company, but today I just wanted to talk about using them to calculate (计算) “Simple Interest” (单利).

Usually, when we loan money to someone or invest (投资) our money in something, we do so on the condition that we receive back more money than we put in.  Our corporation is not a charity (慈善机构), we don’t loan you things for free!  The original money we invest is called the Principal (本息).  The extra money we get on top is called the Interest (利).

Example ~ Company A (a large global corporation) invests \$100,000 in a small new business called Company B.  Company B has 10 years to pay it back. But Company A doesn’t do this for free ~ they want to maximize their profits too. That means they have to make some money on this contract (合同).  So they ask Company B to pay an additional 7% per year.

\$100,000 = Principal
7% = Interest

## SIMPLE INTEREST (单利)

Problem! ~ 7% of what?
Answer! ~ It depends 🙂   It depends on how Company A decides to count it.

There are two separate mathematical formulas (数学公式) you can use to figure out the Interest.  The first one is called Simple Interest (单利). Simple Interest says that each payment period Company B is going to pay an additional 7% of the original principal (\$100,000).  The formula for Simple Interest is:

$I = PRT$

I = Interest
P = Present Value
R = Interest Rate
T = Number of Years Involved

### Example

Company A (a large global corporation) invests \$100,000 in a small new business called Company B.  Company B has 10 years to pay it back. The interest rate is 7% per year.   What is the Total Interest (利) you will pay over 10 Years?

$I = PRT$

$I = (100,000)(.07)(10) = 70,000$

## Calculating FUTURE VALUE and PRESENT VALUE using SIMPLE INTEREST

The total interest is of course important to both Company A and Company B, there are two other important numbers that the financial managers of Company A want to know–the Present Value of their money and the Future Value of their money.

### Future Value

$FV = PV(1+RT)$

FV = Future Value (how much money you will make in total)
PV = Present Value

R = Interest Rate
T = Number of years involved

Using our example above with Company A & B, the Future Value is calculated like this:

$FV = (100,000)(1+(.07)(10))$

$FV = (100,000)(1.7) = 170,000$

That means Company A will make a total of \$70,000 if they invest their \$100,000 in Company B now. Over 10 years, their \$100,000 will change into \$170,000. 🙂 We like this plan!

### Present Value

Sometimes, for example with bonds (债券), we know the Future Value (how much money will be paid to us in the end). But we don’t know how much money has to be invested (Present Value) to get that future result.  So Present Value is calculated by the formula:

$PV = \frac{FV}{(1+RT)}$

PV = Present Value
PV = Future Value

R = Interest Rate
T = Number of years involved

Example: Mary Jane knows that in 4 years, she needs to have a total of \$150,000 to pay her college tuition. She has an interest-generating account that gives her a 4% interest rate on everything she puts in. How much money should she invest today (Present Value) in order to have \$150,000 in 4 years?

$PV = \frac{150,000}{(1+(.04)(4))}$

$PV = \frac{150,000}{(1.16)} = 129,310.35$

That means that Mary Jane needs to put \$129,310.35 in her bank account now in order to get \$150,000 in the future.

## KEY TERMS TO REMEMBER

1. Value (值)
2. Present Value (现值)
3. Future Value (未来价值)
4. Interest (利)
5. Simple Interest (单利)
6. Principal (本息)

## FORMULAS TO REMEMBER

### Simple Interest

$I = PRT$

### Future Value

$FV = PV(1+RT)$

### Present Value

$PV = \frac{FV}{(1+RT)}$

## Corporate Finance – What is the Balance Sheet?

27 Apr

**As always, my work is designed with Chinese ESL student in mind. Please consider this when reading.

Corporate Finance has 3 main types of Financial Documents:

• Balance Sheet ~ Value of the Company (How it is divided between Debt and Equity)
• Income Statement ~ Specific Use of Assets and Liabilities
• Cash Flow Statement ~ How Cash is Handled from the moment it enters the company until it leaves.

# Balance Sheet

We all know that Revenue has to be bigger than Costs/Expenses if the company is going to be successful (Revenue – Cost = Profit). And if you are a financial manager, your legal responsibility is to increase profits for the Shareholders (earn a profit).

However, for years all that companies worked with were Income Statements. Unfortunately many of them quickly realized they could hide money away in methods not put on the Income Statement. Not only that, but the Income Statement didn’t really outline all of the important factors used in looking at Profit.  So now we have the Balance Sheet -a financial document intended to make everything more honest and clear.

The Balance Sheet summarizes the Assets, Liabilities, and Equity at a certain date.

•    It is an overall summary of what the company looks like.
•   It explains to the Business how well the company is functioning
•   It explains to Owners how well their Equity is doing
•   In general, it tells us if the company will be profitable or not.

For example, how much is the company worth July 2016?

### General Equation (Assets = Equity – Liabilities)

• Assets = Everything owned by the company.  Obtained by either creating capital or obtaining debts (borrowing money)
• Current Assets –Assets that will be turned into cash within 1 Year
• Long-Term (Fixed) Assets – Assets that will be turned into cash within more than 1 Year
• Intangible Assets – Assets that you cannot see, but that still exist
• Liabilities = All the debt the company has to pay
• Current Liabilities—Debts to be paid this year.
• Long-Term Liabilities—Debts to be paid in more than 1 year.
• Equity (Net Worth) = Assets – Liabilities (The Company’s Value for the owners)
• Owner’s Equity (Owner’s Investment – Owner’s Withdrawals from the Company +/- Net Income/Loss)
• Retained Earnings
• Net Profits or Losses

The Balance Sheet will be organized according to the “Liquidity” of the category (meaning how quickly that category of assets, liabilities, or equity can be changed into cash). The farther down the list we go, the less liquid the categories become.

## Couldn’t be more Proud

28 Nov

My Finance Students in their Graduation Photo. ❤

I’ve just spent the last week working for hours and hours with some of my students to get their papers finished. One of my students told me it was the first time a teacher had ever told him good job, and another said he had never worked so hard on an assignment. In the end, I’ve never been so impressed or proud as I have been of these people. They work their butts off trying to not only comprehend difficult subjects, but also to explain it back to you in a completely foreign language. And after looking at the finished works tonight, I could almost cry I’m so happy. They got it! and they wrote it! and they even added in some really great ideas for the solutions part, things that I wouldn’t even have thought of. So tonight I want the world to know that my students rock and I love them all!