Lecture One

Question 1

what are tangible assets

Answer 1

physical assets that u can touch -equipment, property etc

Question 2

intangible assets

Answer 2

assets u cant touch - e.g. brand, R&D

Question 3

what do we invest into

Answer 3

real assets - used to produce goods/services not financial assets

Question 4

what are the main financial decisions

Answer 4

raising finance to fund investments

Question 5

what is capital

Answer 5

refer to cash, bank deposits, stocks, investments, and retained profits.

Question 6

debt capital

Answer 6

Debt financing involves borrowing funds that must be repaid with interest.

Question 7

equity capital

Answer 7

Equity financing involves raising funds by selling ownership shares in the business.

Question 8

which of the two capitals are cheaper

Answer 8

debt is and it is also less risky

Question 9

what r investment decisions

Answer 9

Decisions about where to allocate funds to generate future returns.

Question 10

what r financing decsions

Answer 10

Decisions about how to raise and manage funds for business operations.
-how to fund investments e.g. telling us where we got money from

Question 11

examples of investment decsions

Answer 11

Buying machinery or technology

Question 12

what is limited liability

Answer 12

when the owners of a corporation are seen as separate, they aren’t personally liable for the obligations

Question 13

what is unlimited liability

Answer 13

when owners of corporation are seen as one

Question 14

which company types have unlimited liability

Answer 14

partnerships and sole traders

Question 15

agency problems

Answer 15

managers are agaents for stockholders, they are tempted to act in own interest rather then maximising value

Question 16

agency cost

Answer 16

value lost from agency problems/cost of mitigating agency problems

Question 17

what can happen in a large company

Answer 17

separation of ownership and control

Question 18

how do shareholders play in the problem of ownership and control

Answer 18

they own part of the company -they invest money in the company and own shares but don’t make daily decisions.

Question 19

how do directors play in the problem of ownership and control

Answer 19

they run the business -they are hired to run the company and make business decisions

Question 20

what is future value

Answer 20

amount an investment wil grow after earning interest

Question 21

simple interest

Answer 21

interest earned only on the original (principle) investment. no interest earned on pervious interest

Question 22

compound interest

Answer 22

interest earned on orignial(principle) investment and previous interest earned

Question 23

example of simple interest if 6% interest on principle of £1,000 3 years

Answer 23

then each year it would increase by 60 because 6% of 1000 = 60.

year 0 = 1000
year 1 = 1,060
year 2= 1,120
year 3 = 1,180

Question 24

how to work out future value using compound interest

Answer 24

FV = investmentPV * (1+r)^t

r = interest rate as a decimal
t = the time period

or
PV(1+r/m)^mt
m= months
divide interest
times the t years

Question 25

example of compound interest if 6% interest on principle of £1,000 3 years

Answer 25

it would be year 0 = 1,000.00 year 1 = 1,060.00 year 2= 1,123.60 year 3 - 1,191.02 year 3 = 1000 x (1+0.06) ^3

Question 26

what is the present value when working out compound interest future value

Answer 26

1,000 is the present value of 1,192.02 recievable at year 3, at interest rate 6%