Unit 6 break down (Its hard)

Question 1

What would a firm invest in and why

Answer 1

They may invest in Capital (Machines) or Labour (Training) to Inc productivity and Inc Profit

Question 2

Why would a firm needs finances

Answer 2

Expand Business
Improve cash flow
Money for a start up business

Question 3

What is The calculation for Average rate of return (ARR)

Answer 3

(Average annual profit/ Cost of capital) x100

Question 4

How do you calculate average annual profit for ARR

Answer 4

Total/number of years

Question 5

What is the difference between debt and equity

Answer 5

Debt is long term external finances (Loan)
Equity is All non-debt cash (Share capital)

Question 6

What are the cons of debt

Answer 6

Intrest payments and Intrest Rates debt

Question 7

What are the cons of equity

Answer 7

Lose control by issuing to many shares
Pay dividends

Question 8

What are some examples of Internal finance and what are the cons

Answer 8

retained profit
founder finance
(Opportunity cost)

Question 9

What are some examples of external finance

Answer 9

Loans
Selling shares,
Trade credit
(Lose control or Intrest)

Question 10

What is an overdraft

Answer 10

When a business takes out more cash from the bank account than it holds

Question 11

Trade credit

Answer 11

When you buy resources from suppliers one day, and pay later
(Pay over time but can ruin rep)

Question 12

What is break even

Answer 12

When total cost = total revenue