Finances - Ch. 15

Question 1

Why do Businesses need money?

Answer 1

For Short term and Long term expenditures

Question 2

What are examples of short/long term expenditures?

Answer 2

Short-term: A/R, A/P & Inventories
Long-term: Fixed Assets (like land)

Question 3

Where are some places you can get money for short/long-term expenditures?

Answer 3

Short-term: Secured Loans (like mortgages), Unsecured Loans (Non-revolving/revolving LOCs), Commercial Papers

Long-term: Debt Financing (bonds), Equity Financing (stocks, retained earnings).

Question 4

What’s the difference between Non-revolving/Revolving LOCs?

Answer 4

• Non-revolving: Drawn at particular interest rates (like car financing).
• Revolving: Borrower must pay interest & commitment fee to have money available (credit cards)
• Commercial Papers: Mostly for corporations. Issued at lower value than stated on books, it accumulates interest. Eventually, the face value is paid back.

Question 5

How can you finance money for long-term expenditures?

Answer 5

Debt Financing (Bonds)
Equity Financing (Stocks/Retained Earnings)

Question 6

Risk v. Return of Fund Sourcing?

Answer 6

Manage Risk w/ Asset Allocation/Diversification.

Return of Investments
Rule of 72 (how long for it to double), compound interest growth

Question 7

How can one invest to grow money?

Answer 7

• Savings Account: Usually 1-2% return
• GICs: Deposit money into an account and receive fixed interest payments for a fixed amount of time.
• Bonds: Issuer agrees to pay back interest plus principal @ investment maturity.
• Stocks (self-explanatory)
• Mutual Funds: A pool of investments that financial officers monitor. Determines which fund belongs to whom.
• Exchange Traded Funds (Like MFs but not actively managed).
• Hedge Funds: Private money pool that attempts to give returns regardless of market.

Question 8

What is Short Selling?

Answer 8

Short-selling is if the share price goes down, the investor makes more money.

This is typically seen in hedge funds.

Question 9

What are some personal savings plans?

Answer 9

RRSPs (Retirement Plan)
Non-Registered Savings Plan
RESPs (Education)
TSFAs (Tax-free)

Question 10

How can you execute those savings plans?

Answer 10

• Use Pre-Auth purchase plans: Money from paycheque is either automatically put into investment or bills.
• Pay yourself first: 10% goes to savings
• Stay Involved and Passionate
• Keep track of hidden fees
• Compound Everything