Chapter 10a
What is risk-return trade off?
individuals prefer more certain financial earnings than less certain outcomes
What is diversification?
"don't put all your eggs in one basket"
What is time value of money?
investors demand a premium in exchange for waiting to get their money later, and borrowers are willing to pay an additional amount to postpone making the payment until later
What is a successful marketing strategy?
1. identify
2. develop
3. deliver
What is business-to-consumer (B2C)?
business sells products to consumers
ex: canon sells cameras to individuals directly from website
Tax Treatment (debt vs equity)
Debt - interest in tax deductible
Equity - dividend are not tax deductible
Ownership & Control (debt vs equity)
Debt - no ownership given up but perhaps some restrictions as a condition of borrowing
Equity - investors have an ownership stake in the company and have voting rights
What is Controlling?
1. identity deviations from budget
2. propose solutions
3. adjust as needed
- budget vs. actual
What are 2 types of consumers?
1. consumers - end users of products, purchase products for own use
2. business buyers - purchase products to resell or use in producing another product
What is the business buyer decision process?
1. committee process
2. budgets
3. size of purchase
4. demands of the other business activities
Repayment (debt vs equity)
Debt - principal and interest payable upon some agreed schedule, even if the firm is not profitable
Equity - investment isn't required to be repaid by firm; firm may choose to pay dividend
What are financial managers?
1. acquiring financial resources
2. allocating funds in the organization
forecast --> budgets --> control
How to manage short-term financial needs?
1. cash inflows vs. cash outflows
2. working capital
3. collecting receivables
4. managing accounts payable
5. trade credit
What is the consumer decision process?
1. problem recognition
2. information search
3. evaluation of alternatives
4. purchase decisions
5. post-purchase evaluation
What are the types of business buyers?
1. producers
2. resellers
3. government
4. institutions
What is forecasting?
How much cash is needed to meet objectives in short and long term
What is budgeting?
1. operating budget
2. capital budget
3. cash flow budget
4. master budget
What does debt financing entail?
1. secured loans
2. unsecured loans
3. factoring accounts receivable
4. commercial paper
5. corporate bonds
What are types of consumer decisions?
1. extended problem solving
2. limited problem solving
3. routine response behavior
What is a new task buy?
the business has never before purchased this good or service and does not have an existing set of product specifications not a preferred supplier list
What is cash flow, not profits?
cash pays the bills, not profits
What is asset valuation?
the value of an asset in an organization is its ability to generate positive cashflow overtime
What does equity financing entail?
1. retained earnings
2. issuing stock
3. venture capital
What is business-to-business (B2B)?
one business sells products to another business
ex: canon sells copiers to fedex
What is a modified rebuy?
business has previously purchased a product but must revisit the product specifications due to a change in circumstances