AFM 191 - Chp 3.2 - Financing tangible long-term assets

Question 1

How do private companies obtain financing

Answer 1

1. cash on had (finance internally)
2. borrow money from a bank (debt financing)
   3, raise money from private investors (equity financing)

Question 2

Define working capital

Answer 2

cash for day-to-day operations

Question 3

Define a line of credit

Answer 3

short-term in nature - typically paid in 1 year

common way for companies to borrow money from a bank for day-to-day operations

when banks lend through a line of credit they determine the maximum amount that ban be borrowed by a company- companies can then access money from the line of credit up to the limit and use as needed.

Question 4

define a long-term loan

Answer 4

money sent by a bank to a company to purchase long-term assets

Question 5

define interest rate

Answer 5

cost ot borrow money from a bank

Question 6

Define principal payments

Answer 6

periodic payments made to a bank to repay the amount borrowed

Question 7

define interest payments

Answer 7

periodic charges paid to a bank when money is borrowed 0 interested is calculated based on the beginning long-term loan balance

Question 8

define interest

Answer 8

the cost to borrow money from a bank, expressed as a percentage