Definitions: American style- exercise on/before expiration date (cannot be worth less than intrinsic value) European- exercise

only on
expiration date Option- contract that gives holder right to buy/sell specific item at specific price premium-price paid by buyer open interest-
total # of contracts of particular option written hedge- reduce risk by buying options whose payoff offsets exposure in underlying asset
speculate- use options to bet on direction of market prices Cash Cycle- length of time between when firms pays for inventory purchases and
when it receives cash from sales Credit granting decision (nature of product, gross profit in sale, practice of competitors) Forecasting purpose
(meet financial goals, surplus cash-dividends?, corporate plans-additional external financing) customer credit analysis (capacity, character,
collateral, conditions (economy) Financing A/R- trade A/P (negotiation), customer deposits, progress payments, bank operating line, factoring
A/R (complex/expensive) Inventory Management- pros: large-volume discounts, reduce production disruptions, minimize lost sales cons:
financing costs, storage/handling/insurance/spoilage costs Option Price = Intrinsic Value + Time Value Intrinsic Value = difference between
strike and market price (never <0) Time value = difference between option price and intrinsic value (made up of leverage value = difference
between discounted value of exercise price and exercise price> earning interest from not disbursing funds, option feature( right but not
obligation to buy/sell) Financing Inventory- trading A/P, consignment inventory, bank operating lines Trade-Credit (ST financing)-
convenient, flexible, usually no restrictive covenants Maple Bonds- Canadian bonds issued by foreign firms in Canada Sinking Funds- regular
payments into fund to repurchase bonds (determined by lottery) Convertible Bond- option to convert debt into equity Warrant- call option
written by company on new stock prime rate- rate that banks charge their most credit-worthy customers Callable- bond redeemed by issuer prior
to maturity (interest rates fallen/lower price than non-callable) Exit strategy- how investors realize return from investment (IPO, investee’s co
being acquired) Direct Listing -more liquidity for existing shares , no underwriter Commercial paper- short-term, unsecured debt (cheaper
source of funds) Credit default swap- when a buyer pays a premium to the seller (often in the form of periodic payments) and receives a
payment from seller to make up for the loss if underlying bond defaults put-call parity- relationship between put option & call option on same:
asset, strike price and expiry date corporate debt- portfolio on riskless debt + short position in put option on firm’s asset with strike price =
required debt payment Derivative- financial contract whose values depend on 1+ underlying assets/indexes (achieve certainty or insurance
strategies) Matching principle- ST assets financed with ST debt, LT assets financed with LT debt Liquidity Support- dedicated line of credit
from bank Leveraged Buy-Out – group of private investors finances an acquisition primarily with debt repayment provisions- tender offer
(entire issue), exercise call provision (retire all outstanding bonds on/after specific date for call price) rights offer- new shares offered to
existing shareholders cash offer- new shares sold to investors underwriter- investment bank manages IPO process, helps company sell stock
Eurobond-international bonds local currency (country of issuance) foreign bonds-bond issued foreign company in local market in local currency

Black- Scholes- option value function of: price of underlying, interest rate, exercise price, volatility, time to maturity, dividend rate *if stock
𝑆
( ) 𝜎√𝑡)
𝑃𝑉(𝐾)
price exceeds conversion price -> convert 𝑑1 = ln ( )+ and 𝑑2 = 𝑑1 − 𝜎√𝑡 EAR = (1+ ((FV/ Amount Received) -1)^( 365/ # of
𝜎(√𝑡) 2

days), STRIP- separate trading of registered interest and principal ST Debt—commercial paper (unsecured), banker’s acceptance/ operating
lines LT Debt- mortgage, debentures, term loans Call Provision- callable bond trade at lower price, (reinvest proceeds when market rate <
coupon rate) yield < coupon (callable bond called) YTM- IRR of investment in bond held to maturity YTC- yield of callable bond called on
earliest call date 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐶𝑎𝑙𝑙 = 𝐼𝑛𝑡𝑟𝑖𝑛𝑠𝑖𝑐 𝑉𝑎𝑙𝑢𝑒 + 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝑂𝑝𝑡𝑖𝑜𝑛 𝐹𝑒𝑎𝑡𝑢𝑟𝑒

Permanent working capital- minimum level of net working capital over year to support continuing operations Temporary Working Capital-
excess of net working capital over permanent working capital (quarter, monthly basis etc.)

Calculating Debt Capacity 1) First row- all years (starting from 0) 2) 2nd row- Free Cash Flows (Given) 3) 3rd row VL 4th row Debt Capacity

Calculating FCFE 1) First row- FCF 2) 2nd row- Subtract: After-tax Interest 3) 3rd row Add: Net Borrowing 4) FCFE discount FCFE by (1+rE)

Equity as call option on firm assets = strike price equal to required debt payment 1) Calculate Equity 2) Calculate Debt based on (D/E) 3) Find
face value of debt = (1+YTM)^n *current value of debt 𝑅𝑖𝑠𝑘𝑦 𝐷𝑒𝑏𝑡 = 𝑅𝑖𝑠𝑘 − 𝐹𝑟𝑒𝑒 𝐷𝑒𝑏𝑡 – 𝑃𝑢𝑡 𝑂𝑝𝑡𝑖𝑜𝑛 𝑜𝑛 𝐹𝑖𝑟𝑚 𝐴𝑠𝑠𝑒𝑡𝑠 PV (interest tax
shields) discounted using unlevered cost of capital PV (subsidized loan) = PV (tax shield) + PV (interest subsidy) interest subsidy value =
(market rate of interest -fixed interest on project) * loan amount 𝑝𝑟𝑜𝑗𝑒𝑐𝑡 𝑁𝑃𝑉 = 𝑢𝑛𝑙𝑒𝑣𝑒𝑟𝑒𝑑 𝑁𝑃𝑉 + 𝑃𝑉(𝑡𝑎𝑥 𝑠ℎ𝑖𝑒𝑙𝑑) + 𝑃𝑉(𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑠𝑢𝑏𝑠𝑖𝑑𝑦)

Comparable Firm- 1) Determine re and rd for both comparables 2) Determine ru for both comparables 3) take average of ru between both firm
comparable 4) Calculate new re = ru+(D/E)(ru-rd) 5) rd given in info 6) Calculate new WACC given new rE and rD
𝑑𝑒𝑏𝑡
FCFE= 𝐹𝐶𝐹 − (1 − 𝑇𝑐) ∗ 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠 + (𝑁𝑒𝑡 𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔) 𝐷𝑡 = 𝑑 ∗ 𝑉𝑡𝐿 , 𝑑 = 𝑁𝑒𝑡 𝐵𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 (𝐷𝑎𝑡𝑒 𝑡) = 𝐷𝑡 − 𝐷𝑡−1
𝑣𝑎𝑙𝑢𝑒
*discount using cost of equity * Call option ≠> stock price, put option cannot ≠ > strike price, volatility increase value of option
Option Combinations- straddle -> buying (long) put option and call option on same stock, exercise date and strike price, used if volatile, makes
money if stock and strike prices far apart (strike price ≠ stock price: positive payoff) strangle – straddle where strike price (call) > strike price
(put), do not receive money if stock price is between two strike prices butterfly spread- buying two call options with differing strike prices, and
shorting two call options with strike price equal to average strike price of first two calls (makes money when stock and strike price are close)

Protective Put- long position in put option held on stock already owned (portfolio insurance) *can be optimal to exercise deep-in-the-money
American put option before expiration/exercise American call option before stock goes ex-dividend *never optimal to exercise American call
option on non-dividend paying stock early Payout is never negative, Profit from holding option can be negative Underlying exposure-
commodity, currency, interest rate, equity Public debt covenants- limits on additional borrowing, prohibition on later issue of more senior debt,
maintenance of financial ratios Bond covenants- positive: audited F/S, maintain/insure assets, timely payment of interest/principal negative:
dividends beyond specified, sell senior debt and limit new debt (𝐵𝑟𝑒𝑎𝑘 − 𝐸𝑣𝑒𝑛)𝑪𝒂𝒍𝒍 = 𝑠𝑡𝑟𝑖𝑘𝑒 𝑝𝑟𝑖𝑐𝑒 + 𝑎𝑠𝑘 𝑝𝑟𝑖𝑐𝑒 (𝐵𝑟𝑒𝑎𝑘 − 𝐸𝑣𝑒𝑛)𝑝𝑢𝑡 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑜𝑛 𝐾 𝑆𝑡𝑟𝑖𝑘𝑒 𝑃𝑟𝑖𝑐𝑒
𝑠𝑡𝑟𝑖𝑘𝑒 𝑝𝑟𝑖𝑐𝑒 − 𝑎𝑠𝑘 𝑝𝑟𝑖𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑌𝑖𝑒𝑙𝑑 = max 𝑝𝑟𝑖𝑐𝑒 (𝑐𝑎𝑙𝑙 𝑜𝑝𝑡𝑖𝑜𝑛) = 𝑆𝑡𝑟𝑖𝑘𝑒 𝑃𝑟𝑖𝑐𝑒 −
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑆𝑡𝑜𝑐𝑘 1+𝑟𝑓
𝐾 1
max 𝑠𝑡𝑟𝑖𝑘𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝐾 − < 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑙𝑜𝑤𝑒𝑠𝑡 𝑠𝑡𝑟𝑖𝑘𝑒 𝑝𝑟𝑖𝑐𝑒 = 𝐾 (1 − ) < 𝐷𝑖𝑣 long forward payoff = owning call + selling short
1+𝑟 1+𝑟
Arbitrage Opportunity- Call Price < Market Call Price 1) Sell Call 2) Buy Stock 3) Buy Put 4) Borrow PV(Strike Price)
Call Price > Market Price 1) Short Sell Stock 2) Buy PV(Strike Price) 3) Buy Call

Venture Capital/ Private Equity Fund Structure- limited partnerships raise money to invest in private equity of early stage firms General
Partners – “Managers” who run the VC firm (choosing/managing investments, typically don’t share in risk of loss), Limited Partners- investors
pension funds/ wealth funds (8-10 years) Private equity- usually take control equity position, invest in later stage firms, LBO

Calculations - YTC or YTM – RATE Formula in Excel, pv parameter is negative (current price), fv (face value), if given semi-annual rate,
multiply ending rate by 2 YTC same calculation except nper is different based on years to call (four parameters) PV (After-Tax Cash Flows
(free cash flow) ) – PV(pre-tax cash flows (unlevered NPV) /interest tax shield) (only first three parameters needed) calculate tax shield using
given interest but PV uses “market rate of interest” PV(debt-four parameters) “rate” is yield to maturity ,“pmt” refers to coupon rate * debt
𝐴𝑚𝑜𝑢𝑛𝑡 𝑡𝑜 𝐵𝑜𝑟𝑟𝑜𝑤 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 (=𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑜𝑛 𝑙𝑜𝑎𝑛+𝑙𝑜𝑎𝑛 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑡𝑖𝑜𝑛 𝑓𝑒𝑒)
ST Financing-𝐴𝑚𝑜𝑢𝑛𝑡 𝑁𝑒𝑒𝑑𝑒𝑑 = 𝐸𝐴𝑅 (𝐿𝑜𝑎𝑛 + 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑡𝑖𝑜𝑛 𝑓𝑒𝑒) = ,,
1−𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑈𝑠𝑎𝑏𝑙𝑒 𝐴𝑚𝑜𝑢𝑛𝑡(=𝐿𝑜𝑎𝑛−𝐿𝑜𝑎𝑛 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑡𝑖𝑜𝑛 𝐹𝑒𝑒)
*(1+r)^(365/30) (if “ear” calculated before using monthly APR for interest rates)
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑜𝑛 𝐿𝑜𝑎𝑛
𝐸𝐴𝑅 (𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒) = Monthly APR interest rate (given annual) = Annual rate / 12
𝐿𝑜𝑎𝑛−𝐿𝑜𝑎𝑛 𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐹𝑒𝑒

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐹𝑒𝑒 𝑜𝑛 𝐿𝑜𝑎𝑛+𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐹𝑒𝑒

𝐸𝐴𝑅 (𝑆𝑒𝑐𝑢𝑟𝑒𝑑 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑛𝑔) = stretching A/P = lower EAR
𝑈𝑠𝑎𝑏𝑙𝑒 𝐴𝑚𝑜𝑢𝑛𝑡 (𝐿𝑜𝑎𝑛−𝐹𝑒𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝑎𝑡 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑌𝑒𝑎𝑟)

𝐸𝐴𝑅 (𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑜𝑛 &𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑡𝑖𝑜𝑛 𝑓𝑒𝑒) 1) Determine what firm must borrow = (loan amount + origination fee)/ (1-compensating balance%)
2) Determine amount in compensating balance = compensating balance % * amount in 1) 3) Determine monthly APR Rate and multiply
(1+APR) *1) (amount owed in total) 4) Deduct compensating balance from amount in 3) to get required payment 5) solve for r 𝑙𝑜𝑎𝑛 ∗
(1 + 𝑟) = 4) 6)EAR = (1+r)^(365/30)-1
𝑁𝑃𝑉
Cut-off NPV (𝛽𝐷 ∗ 𝐷)/ (𝐵𝐸 ∗ 𝐸) 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝐼𝑛𝑑𝑒𝑥 = 𝑉𝐿 = 𝐸 + 𝐷 target debt-equity re-calculate re and wacc
𝐼
𝐷
𝑟𝑤𝑎𝑐𝑐 = 𝑟𝑢 − 𝑑𝑟𝐷 𝑇𝑐 , 𝑤ℎ𝑒𝑟𝑒 𝑑 𝑖𝑠 𝑡ℎ𝑒 𝑑𝑒𝑏𝑡 − 𝑡𝑜 − 𝑣𝑎𝑙𝑢𝑒 𝑟𝑎𝑡𝑖𝑜 reduce net income through purchasing shares 𝑟𝐸 = 𝑟𝑈 + ( ) (𝑟𝑢 − 𝑟𝑑 )
𝐸

1−𝑇𝑑
Dividend Capture 𝜟𝑃 = 𝐷𝑖𝑣 ∗ ( ) , 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠ℎ𝑎𝑟𝑒 𝑣𝑎𝑙𝑢𝑒 𝑤ℎ𝑒𝑛 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑎𝑖𝑑, 𝑣𝑎𝑙𝑢𝑒 𝑤𝑖𝑙𝑙 𝑓𝑎𝑙𝑙
1−𝑇𝑔
∗ (1−𝑇𝑐 )(1−𝑇𝑑 )
𝑇𝑟𝑒𝑡𝑎𝑖𝑛 = [1 − ] 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑓𝑖𝑟𝑚 𝑣𝑎𝑙𝑢𝑒 (𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑒) 𝑇𝑎𝑥 𝑠𝑎𝑣𝑖𝑛𝑔𝑠 = (𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑝𝑟𝑖𝑐𝑒 − 𝑎𝑓𝑡𝑒𝑟 − 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑟𝑖𝑐𝑒) ∗ 𝑇𝑔
1−𝑇𝑖
Net Tax = Dividend Tax – Tax Savings
# 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 𝑣𝑎𝑙𝑢𝑎𝑡𝑖𝑜𝑛+𝑛𝑒𝑤 𝑟𝑖𝑔ℎ𝑡 𝑖𝑠𝑠𝑢𝑒 𝑒𝑞𝑢𝑖𝑡𝑦 𝑣𝑎𝑙𝑢𝑎𝑡𝑖𝑜𝑛
Money Raised from rights issue- = 𝑠ℎ𝑎𝑟𝑒𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 𝑆ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒 =
# 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠 𝑝𝑒𝑟 𝑖𝑠𝑠𝑢𝑒 𝑜𝑟𝑖𝑔𝑛𝑎𝑙 # 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔+𝑛𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠 𝑓𝑟𝑜𝑚 𝑟𝑖𝑔ℎ𝑡𝑠 𝑖𝑠𝑠𝑢𝑒

𝐴𝑚𝑜𝑢𝑛𝑡 𝑛𝑒𝑒𝑑𝑒𝑑 𝑡𝑜 𝑏𝑒 𝑟𝑎𝑖𝑠𝑒𝑑 𝑃𝑒𝑥 −𝑆

𝑆ℎ𝑎𝑟𝑒𝑠 𝑖𝑠𝑠𝑢𝑒𝑑 = 𝑅= , 𝑅 = (𝑃𝑜𝑛 − 𝑆)/ (𝑁 + 1) 𝑅 = 𝑃𝑜𝑛 − 𝑃𝑒𝑥 R=value of one right, S = subscription price,
𝑆𝑢𝑏𝑠𝑐𝑟𝑖𝑝𝑡𝑖𝑜𝑛 𝑃𝑟𝑖𝑐𝑒 𝑁
P(ex-rights price) N = Number of rights needed to buy one share Pon- rights-on price (what shares currently worth)
𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦 = 𝑟𝑖𝑔ℎ𝑡𝑠 − 𝑜𝑛 𝑝𝑟𝑖𝑐𝑒 ∗ 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑟𝑖𝑔ℎ𝑡 𝑖𝑠𝑠𝑢𝑒 𝑒𝑞𝑢𝑖𝑡𝑦 # 𝑜𝑓 𝑟𝑖𝑔ℎ𝑡𝑠( 𝑝𝑒𝑟 𝑖𝑠𝑠𝑢𝑒) ∗
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑖𝑠𝑠𝑢𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠 ∗ 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑜𝑛𝑒 𝑟𝑖𝑔ℎ𝑡

IPO Puzzle – 1. IPOs are underpriced on average 2. New Issues highly cyclical 3. Transaction Costs of IPO high 4. Long-run performance poor
underpriced IPO (first-day return positive)

Conversion Value = Conversion Price * current stock price Conversion Value = Straight Bond Value = Straight Bond Value / Conversion Value
*Bond holders should convert if conversion value exceeds the straight bond value

A/R Aging Schedule – Column 1: Days Outstanding , Column 2: Amount Owed, Column 3: % of A/R

Debt as Equity Call Option – Debt can be viewed as effectively owning the firm’s assets but being short the call option
Profit = Total Payoff – Future Value of Premiums *American Option cannot be worth less than intrinsic value

Payout Policy - 1. Declaration – BOD passes motion to create dividend 2. Date of Record = date for which shareholders receive dividends is
based upon 3. Ex dividend date (2 days before date of record) = the first date that value of shares will reflect dividend payment (fall in value of
share) 4. Date of Payment = date dividend is paid MM (Dividend Irrelevance Theorem) – in perfect capital markets, with fixed investment
policy, choice of dividend policy irrelevant, initial share price not affected Perfect Markets – no taxes/ transaction costs/ risk of bankruptcy,
complete market information, borrow same rates 𝑃𝑐𝑢𝑚 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 + 𝑃𝑉( 𝐹𝑢𝑡𝑢𝑟𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠), 𝑃𝑒𝑥 = 𝑃𝑉( 𝐹𝑢𝑡𝑢𝑟𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠)
MM(Payout Policy Irrelevance) – in perfect capital markets, firm’s excess cash flows- payout vs. retention is irrelevant, share price not affected
Optimal Dividend Policy = pay no dividends if dividend tax rate > capital gains tax rate Spin-off – shares of subsidiary Stock Split- shares of
firm itself Dividend smoothening- maintain relatively constant dividends indenture- formal contract between bond issuer and trust company
Government of Canada: four kinds of domestic securities: cash management bills, treasury bills, fixed-coupon marketable, and real return bonds

Debt Overhang = NPV of projects given up, block capital investment Payoff = Probability * (Payoff – Debt) *payoff = 0 if less than debt
Agency Cost = Highest expected payoff (all projects) – expected payoff (best option for specific debt level) *bankruptcy= supervised, legal,
complex, time-consuming, direct cost: (reduce value of assets investors receive) indirect: customers looking other suppliers, staff may leave,
increased interest rates and fees, creditors tightening credit terms *debt repayments mandatory, dividends are through discretion of BOD