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Lesson 10-1

Lesson 10-1. Turning Savings Into Investments Financing business operations and growth in an important part of the free-enterprise system. People deposit funds into financial institutions, which makes these funds available to businesses.

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Lesson 10-1

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  1. Lesson 10-1 • Turning Savings Into Investments • Financing business operations and growth in an important part of the free-enterprise system. • People deposit funds into financial institutions, which makes these funds available to businesses. • The movement of these funds creates economic growth and expansion.

  2. Before you Pursue Financing • Cost-benefit analysis- weigh cost against benefits • Estimate costs of expansion • Calculate expected income • Calculate expected profits • Calculate cost of loans • Undertake an activity up to the point at which the additional benefit equals the additional cost.

  3. Why people are willing to finance investment • People who finance investments seek rewards • Interest earned on loan • Dividends from the stock • Personal stake in the company • The same individual is sometimes both the borrower and the lender

  4. Pursuing Investment Financing • Resources go where they generate the highest expected value • Businesses compete for scarce financial resources • There are many methods of financing bonds, stocks, loans, and the Internet.

  5. Lesson 10-2 • Three kinds of financing • Short-term financing is when the term of loan is less than one year; used for short-term needs. • Intermediate-term financing is when the term of the loan is 1 to 10 years; used when a company wants to expand through land, buildings, or equipment. • Long-term financing is when the term of loan is longer than 10 years; used for major expansion

  6. Choosing the Right Financing • Interest costs- higher interest rates make companies more likely to take out short-term loans in hopes that interest rates will drop. • Financial condition of company- is company too indebted? • Market climate • Control of the company- sometimes stockholders have to give approval before financing decisions can be made

  7. Lesson 10-3 • Steps in Production Operations • Consumer goods are sold directly to individuals as they are • Capital goods are products used to make other goods • Planning step: choosing where to locate the business and how to get the product to consumers (scheduling) • Purchasing step: obtaining raw materials, machines, and supplies • Quality control: checking the quality of your products • Inventory control: taking an inventory of materials used in production

  8. Technology and Methods of Production • Mechanization: combining the labor of people and the power of machines • The assembly line • Division of labor: breaking down of jobs into smaller tasks • Automation: machines do the work while people oversee • Robotics: complicated computer-controlled machinery used to operate assembly lines

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