Intro to Business Chapter 20
Terms
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RQ20-1 Pg 601-603
How does short-term financing differ from long-term financing? Give two business uses for each type of financing. - Short term financing is money that will be used for one year or less then repaid. Short term financing would be used for a new as campaign or a new computer. Long term financing would be used for beginning a business or for introducing a new line of products.
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RQ20-3 Pg 606-607
What is zero-based budgeting? How does it differ from the traditional concept of budgeting? - In zero based budgeting, every expense must be justified in every budget. In the traditional approach, each new budget is based on the dollar amounts contained in the budget for a previous year. When zero based budgeting is used, a manager must justify every expense. You do not automatically get all the items in last year’s budget.
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RQ20-4 Pg 606 figure 20-2
What are four general sources of funds? -
1 sales revenues
2 equity capital
3 debt financing
4 proceeds from sale of assets -
RQ20-5 Pg 608-609
How does a financial manager monitor and evaluate a firm’s financing? - A financial manager may prepare interm budgets for sales and expenses as a means of monitoring and evaluating a firms financing. These interm reports can be compared to budget amounts, and the comparisons may point to areas that require revisions in the budget
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RQ20-6
How important is trade credit as a source of short-term financing? - Trade credit is a very important source of short term financing. Between 80-90% of all transactions between businesses involve some trade credit. No interest is involved. It is merely a delayed payment and may even involve a discount if payment is promptly made.
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RQ20-11 Pg 615 last paragraph
What are the advantages of financing through the sale of stock? - Financing through the sale of stock is advantageous to the company because it needs not payback the money obtained from the sale, and it is under no legal obligation to pay dividends to stockholders.
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RQ20-12
From a corporation’s point of view, how does preferred stock differ from common stock? - When a corporation issues preferred stock, it makes a commitment to pay dividends to preferred stock holders, before and dividends are paid to common stock holders. Preferred stock holders also have first claim (after creditors) of corporate assets if the firm is dissolved or declares bankruptcy.
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RQ20-13
Where do a corporation’s retained earnings come from? What are the advantages of this type of financing? - A corporations retained earnings are the portion of the firm’s profit that is not distributed to stockholders. This type of financing is advantageous because it does not have to be repaid, and the reinvestment of these earnings into the corporation tends to increase the value of the stock while it provides essentially cost-free financing for the company.
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Gilford Securities
1. In addition to significant insider buying, what other clues might Casey Alexander use in identifying companies that could be profitable investments for Gilford’s brokerage customers? - A clue is a major company’s (usually with in a trade) announcement of an alliance with, or a big purchase from, a promising up and coming company. Another clue is a large audience visiting the company’s exhibit during an industry trade show. A third clue is a flurry of patents issued to a particular company.
- 2. Why do you think going public can be traumatic for a company’s management team? How does Gilford make the process easier for a firm selling a new securities issue?
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By going public the management team opens itself and the corporation to much more public scrutiny and comment, as well as significant government regulation of financial reports and activities, also top managers will be expected to disclose financial details that were previously private.
To help a company sell stock, Gilford experts;
1.Complete and file necessary financial information to
A.schedule the offering
B.Setting the initial share price
C.Arranging for the stock to begin trading and continue to trade
2. After the stock sale, Gilford follows up to make sure company’s needs have been met. - 3. If you were the owner of a growing business in need of capital, what questions would you ask when choosing an investment bank to take your company public?
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In this question, you are cast as a business owner selecting an investment firm. What questions would you ask?
1 What specific services will the investment bank provide?
2 What are the investment bank’s fees?
3 Has the investment bank worked with other businesses in the same industry?
4 How successful were the IPO’s that the bank arranged for the other businesses in the same industry?