UNIT 4: FINANCE

Question 1

Why is finance function is relevant?

Answer 1

All companies need to have up-to-date information about its financial health.
To maximize the value of the company for the shareholders.

Question 2

What is funding and what external and internal resources the company has?

Answer 2

For the internal:
- Retained earnings, which are the savings from the previous years: NOT CLAIMABLE

For the external:
- Shareholder’s equity, which is the company’s total net worth and the amount which is paid back to the shareholders when the company is liquidated. NOT CLAIMABLE

• Grants, donations: NOT CLAIMABLE
• Liabilities: CLAIMABLE

Question 3

What does WACC mean and how can you calculate it?

Answer 3

Weighted Average Cost of Capital
Where we calculate how much is the debt and how much is the equity? (Vagyis mennyi a kötelezettség és mennyi a saját tőke)

Question 4

What is investment?

Answer 4

Resources devoted to acquiring current and non current assets and also only durable goods.

Question 5

What are current assets?

Answer 5

Assets linked to the production process, and which will be converted into cash within a year.

Question 6

What are non-current assets?

Answer 6

Assets that cannot be easily converted into cash, and won’t be either within 1 year.
Land, buildings, vehicles, furniture

Question 7

What is dynamic payback? Vagyis dinamikus megtérülés

Answer 7

When the accumulated and discounted collections exceed the accumulated and discounted payments.

Question 8

What is the NET PRESENT VALUE? When do we accept and reject an investment from the NPV’s view?

Answer 8

All discounted cash flows. We create a present value by dividing the future value with a discount factor
PV= FV/(1+r)^n

The higher he discount rate, the lower the NPV

NPV›0: accept
NPV=0: accept
NPV‹0: reject

Question 9

What is the IRR? When do we accept and reject an investment?

Answer 9

Internal rate of return

It is a discount rate, that makes the NPV equal to zero.
It is the annual return of the investment project.

IRR› requested profitability: accept
IRR= requested profitability: accept
IRR‹ requested profitability: reject

Question 10

What is financial equilibrium?

Answer 10

Implies that the resources available for paying debts are higher or equal to the payments.

Question 11

What is working capital?

Answer 11

It is a margin of safety that surges the firm’s liquidity .