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Planning for capital investments answers to the impossible quiz dreambuilder investments lawsuit cash

Planning for capital investments answers to the impossible quiz

It is essentially a visual graph that uses the branching method to map every possible outcome of a particular decision. Identify the Problem C. A central planning authority c. Pause the video to work out and choose your answer - then watch as the correct answer is explained. The decision areas where this analysis is include:- profit planning budgetary control, control, product replacement, pricing decision, selecting of distribution channels, setting volume, sensitive retain on investment target, entry into foreign marking performance measurement.

Twelve Decision Analysis. Elton Mayo. In he published The Economics of Justice , which claimed that judges have been interpreting common law as it they were trying to maximize economic welfare. B diagnostic analysis. Often a multi-criteria decision analysis method is used in a decision making process to determine the best option alternative.

Our offices are shut for Diwali from 13th Nov - 16th Nov , you can place your orders, they will be sent out on 17th Nov What is not an assumption underpinning the rational decision making model? Mathematical analysis. Without proof, we take for granted that the option is the best choice.

All orders placed till 10am on 12th, will be sent out on 12th Nov. Unsupervised learning C. True b. Pressure tactics d. Show all questions. How Multiple Linear Regression Works. Sunk costs—past costs that cannot be changed by any future investment decision— should not be considered in an economic analysis.

User Manual describing the tool's properties, scoring and directions for administration. Statistics is a section of mathematics that manages the collection, interpretation, analysis and presentation of numerical data. Decision tree training is relatively expensive as the complexity and time have taken are more.

Multiple Choice Quiz. In each case, two permutations on 6 are listed. If your score is between 60 and 90, your team has much strength on which to build and opportunities for growth. Decision Science. MCQ C algorithm. Answer D. Multiple Choice Questions forReview 1. The goal for this article is to first give you a brief introduction to decision trees, then give you a few sample questions.

Role Analysis techniques R AT d. Multiple Choice Questions 1. Encouragement c. List the types of system. These MCQs can help you to prepare for your exams, interviews and different tests. Chester Barnard. Academic year. Project selection D. You may like to watch a video on the Top 5 Decision Tree Algorithm Advantages and We present a decision analysis approach to the problems faced by people subject to multiple-choice examinations, as often encountered in their education, in looking for a job, or in getting a driving permit.

Reference c. These tests are also helpful in getting admission in different colleges and Universities. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Seven B. Chapter 9: Decision Analysis. One such tool is the decision tree. Unlimited for analysis. Factor analysis. B equally likely. Cyclical influences D. TRUE Data warehouse is organized according to application. We say that the scale used is: A. Accounting For Business Decisions Mcq. Extensive decision making.

What is the process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment? In decision theory, the values, uncertainties, and rationalities in a given decision are weighed to form an ultimate decision, which is the best possible response to the question. The problem of finding hidden structure in unlabeled data is called A. Once you have completed the test, click on 'Submit Answers for Grading' to get your results.

Multiple Choice Questions. According to MacCrimmon and Wehrung , in the decision making situation risk aversive people are uncomfortable unless: there is a low probability of loss, coupled with a low maximum loss. New tools for analysis that aid decision making are being developed. Key event and decision analysis 'anchor points' Which approach to historical analysis would be most suitable for a manager wanting to assess an organisation's attitudes to markets, customers and change?

This activity contains 12 questions. In a free-market economy the allocation of resources is determined by: a. How did you do? Ans: Decision making is the core function of management. This is the most comprehensive multiple choice questions and answers on GIS. Also, this technique enables to present complex data for decision making visually. Supervised learning B.

If your score is 90 or more, your group demonstrates outstanding teamwork when making decisions. A Decision tree is a flowchart like tree structure, where each internal node denotes a test on an attribute, each branch represents an outcome of the test, and each leaf node terminal node holds a class label.

Give an example of closed system. Security Analysis. That is, a decision maker who regrets her decision in light Multi select Multiple Choice Questions Multi select multiple choice questions are similar to Multiple Choice questions. You can use these MCQs of analytical reasoning as a practice for the real exam or entrytest. Chap Multiple Choice Questions amp. Recent Posts. Skip Navigation. C maximin. The fundamental statistical indicators are: A. Co-opting c.

Data preparation d. Bhoomika A. Multiple Choice Questions MCQs are generally recognized as the most widely This facilitates the computerized analysis of the raw data and allows the question MCQ formats aimed at the assessment of medical decision making. The analysis of a manager as a social. Experience b. Avoidance b. Evaluate the Solution D.

None of these This is a broad category of applications and technologies for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions. Multiple Choice Questions on Research Methodology 1. Cookie Policy This website uses cookies to ensure you get the best experience on our website.

Mastering multiple choice exams are one part mastery of content and one part skillful test taking. Decision Analysis. Practice these MCQ questions and answers for preparation of various competitive and entrance exams. Questions Publications 72, Questions related to Decision Trees. Opportunity loss refers to a the expected value of a bad decision. What is the first stage in the purchase decision process? Melbourne Business School. None of these G. Decision Analysis in Business Chapter Exam Take this practice test to check your existing knowledge of the course material.

However, there is a slight difference in this question type, that these type of questions can have more than one correct answer. All of these Inferential statistics b. On the basis of the evidence available, the null hypothesis is rejected at 0. Define system. To pass this multiple-choice quiz, make sure you understand what a decision tree is and know how to figure out a payback time frame.

Project objective B. In Coase disciple Richard Posner — published Economic Analysis of Law, which became a standard textbook, causing him to become the most cited legal scholar of the 20th century. A rational person does not act unless: a. It is a scientific method employed for problem solving and decision making by the management.

By following step-by-step Decision-Making process will make you more confident on the topic. These questions can also came in Btech Computer science university exams and various interview for computer science students www.

Decision analysis may also require human judgement and is not necessarily completely number driven. Interactive Test Q8 Static analysis can be best described as: a The reviewing of test plans b The analysis of batch programs c The use of black box testing d The analysis of program code. Be skeptical of tax avoidance schemes — you could end up owing the government money in back taxes, interest and penalties. There are other risks of offshore investing, too. It may be impossible to recover your money.

You may use one if you are changing companies and can take your pension savings with you. It works like an RRSP, but your money is locked in. You cannot withdraw the funds until you retire. The money goes to finance government programs and other costs.

You agree to pay back the full amount, plus interest, by a set date. Your plan may make exceptions if you have a terminal illness, or a small pension benefit. To get the loan, you must sell the investments you hold in your LIRA and use this money to buy shares of a start-up company the promoter is selling. They will keep the rest as a fee.

But the investment you buy may be worthless, and you may never see the loan. You could lose your retirement savings. Or, you may be given the chance to join a special group of investors who are going to get rich on a great investment. The invitation might even come from someone you know. Investors who get into the scheme early may receive high returns fairly soon from what they think are interest cheques. Often involves risk. Eventually, new people stop joining the scheme.

In these schemes, scammers work through lists of potential investors to promote an incredible deal on a low-priced stock Stock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions. As more and more investors buy shares, the value of the stock rises sharply. Once the price hits a peak, the scammer sells their shares and the value of the stock plummets.

Check the registration Registration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business. Common investment scams 1. Advance fee scheme In an advance fee scheme, the victim is persuaded to pay money up front to take advantage of an offer promising significantly more in return.

Exempt securities scam When a company wants to sell securities in Canada, it must file a prospectus with securities regulators. How vulnerable are you to fraud? Forex scam The foreign exchange forex market is considered to be the largest and most liquid financial market in the world. Pump and dump scam In these schemes, scammers work through lists of potential investors to promote an incredible deal on a low-priced stock Stock An investment that gives you part ownership or shares in a company.

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Friday, 27 November, FT Weekend Quiz solutions. Friday, 20 November, Friday, 13 November, Friday, 6 November, Tuesday, 3 November, Bridge - Card game. Contract bridge: Combination of plays safely creates crucial extra trick. Promoted Content. Friday, 30 October, Friday, 23 October, Tuesday, 20 October, Monday, 19 October, Friday, 16 October, Tuesday, 13 October, Contract makes when defender fails to demonstrate enquiring mind.

Monday, 12 October, Friday, 9 October, Tuesday, 6 October, Set target, and aim the plays in each suit in that direction. Friday, 2 October, Wednesday, 30 September, Stocks such as Repo Men are thus negatively correlated with move counter to the economy. Even Repo Men shares have positive but low correlation with the market. Here is the calculation for Alta Inds. You should recognize that basing a decision solely on expected returns is only appropriate for risk-neutral individuals.

Since your client, like virtually everyone, is risk averse, the riskiness of each alternative is an important aspect of the decision. One possible measure of risk is the standard deviation of returns. What type of risk is measured by the standard deviation? The larger the standard deviation, the higher the probability that actual realized returns will fall far below the expected return, and that losses rather than profits will be incurred.

Draw a graph which shows roughly the shape of the probability distributions for Alta Inds, Am Foam, and T-bills. Suppose you suddenly remembered that the coefficient of variation CV is generally regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns.

Calculate the missing CVs, and fill in the blanks on the row for CV in the table above. Does the CV produce the same risk rankings as the standard deviation? Answer: The coefficient of variation CV is a standardized measure of dispersion about the expected value; it shows the amount of risk per unit of return.

When we measure risk per unit of return, Repo Men, with its low expected return, becomes the most risky stock. We would do similar calculations for the other states of the economy, and get these results: State Portfolio Recession 3. How does the riskiness of this 2-stock portfolio compare with the riskiness of the individual stocks if they were held in isolation?

This is because the two stocks are negatively correlated--when Alta Inds is doing poorly, Repo Men is doing well, and vice versa. Combining the two stocks diversifies away some of the risk inherent in each stock if it were held in isolation, i.

Suppose an investor starts with a portfolio consisting of one randomly selected stock. What would happen 1 to the riskiness and 2 to the expected return of the portfolio as more and more randomly selected stocks were added to the portfolio?

What is the implication for investors? Draw a graph of the two portfolios to illustrate your answer. Thus, by adding stocks to your portfolio, which initially started as a 1-stock portfolio, risk has been reduced. The average correlation between stocks is about 0. A single stock selected at random would on average have a standard deviation of about 35 percent. Thus, by combining stocks into well-diversified portfolios, investors can eliminate almost one-half the riskiness of holding individual stocks.

Note: it is not completely costless to diversify, so even the largest institutional investors hold less than all stocks. The implication is clear: investors should hold well-diversified portfolios of stocks rather than individual stocks.

In fact, individuals can hold diversified portfolios through mutual fund investments. By doing so, they can eliminate about half of the riskiness inherent in individual stocks. Should portfolio effects impact the way investors think about the riskiness of individual stocks? Stand-alone risk is composed of diversifiable risk, which can be eliminated by holding the stock in a well-diversified portfolio, and the risk that remains is called market risk because it is present even when the entire market portfolio is held.

If you decided to hold a 1-stock portfolio, and consequently were exposed to more risk than diversified investors, could you expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you could have eliminated by diversifying? If the return were high enough to compensate you for your high risk, it would be a bargain for more rational, diversified investors.

They would start buying it, and these buy orders would drive the price up and the return down. How is market risk measured for individual securities? How are beta coefficients calculated? Answer: Market risk, which is relevant for stocks held in well-diversified portfolios, is defined as the contribution of a security to the overall riskiness of the portfolio. Run a regression with returns on the stock in question plotted on the y axis and returns on the market portfolio plotted on the x axis.

Suppose you have the following historical returns for the stock market and for another company, P. Explain how to calculate beta, and use the historical stock returns to calculate the beta for PQU. Interpret your results. Point out that the beta is the slope coeeficient, which is 0. State that an average stock, by definition, moves with the market.

Beta coefficients measure the relative volatility of a given stock relative to the stock market. Most stocks have betas in the range of 0. Theoretically, betas can be negative, but in the real world they are generally positive. In practice, 4 or 5 years of monthly data, with 60 observations, would generally be used.

Some analysts use 52 weeks of weekly data. Point out that the r2 of 0. A portfolio would have an r2 greater than 0. Foam Also, note that t-bills have 0 risk. We do not yet have enough information to choose among the various alternatives. We need to know the required rates of return on these alternatives and compare them with their expected returns. Write out the security market line SML equation, use it to calculate the required rate of return on each alternative, and then graph the relationship between the expected and required rates of return.

How do the expected rates of return compare with the required rates of return? We have a negative beta stock, hence a required return that is less than the risk-free rate. And Am. Foam plot above it, and Repo Men plots below it. Thus, the t-bills and the market portfolio promise a fair return, Alta Inds and Am. Foam are good deals because they have expected returns above their required returns, and Repo Men has an expected return below its required return.

Does the fact that Repo Men has an expected return which is less than the t-bill rate make any sense? Answer: Repo Men is an interesting stock. Therefore, its required rate of return is below the risk-free rate. Basically, this means that Repo Men is a valuable security to rational, well-diversified investors. To see why, consider this question: would any rational investor ever make an investment which has a negative expected return? The fire insurance policy has a negative expected return because of commissions and insurance company profits, but businesses buy fire insurance because they pay off at a time when normal operations are in bad shape.

Life insurance is similar--it has a high return when work income ceases. A negative beta stock is conceptually similar to an insurance policy. What would be the market risk and the required return of a portfolio of Alta Inds and Repo Men?

Of Alta Inds and Am. Answer: Note that the beta of a portfolio is simply the weighted average of the betas of the stocks in the portfolio. Foam, the required return would be Suppose investors raised their inflation expectations by 3 percentage points over current estimates as reflected in the 8 percent t-bill rate. What effect would higher inflation have on the SML and on the returns required on high- and low- risk securities?

If inflation expectations increase by 3 percentage points, with no change in risk aversion, then the entire SML is shifted upward parallel to the base case SML by 3 percentage points. What effect would this have on the SML and on returns of high- and low-risk securities?

The required rate of return will rise sharply on high-risk high-beta stocks, but not much on low-beta securities. However, in a 1-stock portfolio, Stock Y would be riskier under the new conditions. However, if the scatter were wide, we would not have as much confidence in the beta, and this could increase the stock's risk and thus its risk premium. Theoretically, it should be negative. The following figure shows a possible set of probability distributions.

Thus, we have drawn the distribution for the single stock portfolio more peaked than that of the market.

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The key difference between LivePlan and traditional methods is the estimates start when a business starts spending rather than when it launches and starts getting revenues. There is no division between the launch date and pre-launch spending. So there is no specific startup table.

For example, in the Soup There It Is sample business plan, the revenue starts in April— but the spending starts in January. For a look at how these same numbers would show up in the traditional method, read on to the following section. And how do you estimate, with the LivePlan method? Start with revenues, costs, and expenses including payroll. Add in assets. And then solve the resulting cash flow problem by adding financing including loans and investments.

For example, here is how the Soup There It Is balance sheet looked before the founders added investment, loans, and inventory:. Do you see the problem there? Otherwise, checks are bouncing, the bank is up in arms, and the business in trouble. So the founders, as they develop their plan, first project money coming in and out, and from that, they can estimate how much financing, including investment, they need to make that work.

The following illustration shows how the traditional startup worksheet would look in the Soup There It Is plan. The plan would start in April, not January. And what the LivePlan method shows as happening in January through March is consolidated into the startup worksheet. See if you can see these numbers in the projected balance sheet for the LivePlan method, above.

With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses. And many companies also incur some payroll expenses before launch because they need to hire people to train before launch, develop their website, stock shelves, and so forth.

The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. The establishment of a standard fiscal year plays a role in the analysis. It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year.

The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.

Average rating 4. Vote count: No votes so far! Be the first to rate this post. Follow him on Twitter Timberry. Bplans Starting Costs Calculator. The 1 Rated Business Plan Software. Estimating Realistic Startup Costs 8 Min. Read Starting By: Tim Berry. What are startup costs? Why calculate startup costs? Understanding what it will take to start your business can help you: Secure loans and attract investors Estimate profits Conduct a breakeven analysis Identify potential tax deductions Extend the runway of your business Many people underestimate startup costs and start their business in a haphazard, unplanned way.

Startup expenses These are expenses or upfront costs that happen before you launch and start bringing in any revenue. Startup assets These are costs associated with long-term assets purchased in order to start your business. Cash required to get started Cash requirements is an estimate of how much money your startup company needs to have in its checking account when it starts.

How much cash do you need? The traditional method: Startup worksheet The traditional method uses a startup worksheet, as shown in the illustration here below, to plan your initial financing. The LivePlan method: Consolidated estimates LivePlan suggests a different and probably more intuitive way to estimate startup costs. For example, here is how the Soup There It Is balance sheet looked before the founders added investment, loans, and inventory: Do you see the problem there? Things to consider when estimating startup costs Pre-launch versus normal operations With our definition of starting costs, the launch date is the defining point.

Here are common financing options to consider: Investment: What you or someone else puts into the company. It ends up as paid-in capital in the balance sheet. This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later. Accounts payable: Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. In return for the money it receives, the company gives the VC firm stock in the company, as well as some control over the decisions the company makes.

The company, for example, might give the VC firm a seat on its board of directors. The VC might also need to approve certain people who are hired, loans, etc. In many cases, a VC firm offers more than just money. For example, it might have good contacts in the industry or it might have a lot of experience it can provide to the company. One big negotiating point that is discussed when a VC invests money in a company is, "How much stock should the VC firm get in return for the money it invests?

The VC firm and the people in the company have to agree on how much the company is worth. This is the pre-money valuation of the company. Then, the VC firm invests the money, and this creates a post-money valuation. The percentage increase in the value determines how much stock the VC firm receives. More or less is possible, but that's a typical range.

The original shareholders are diluted in the process. Dot-coms typically use venture capital to start up because they need lots of cash for advertising, equipment, and employees. They need to advertise in order to attract visitors, and they need equipment and employees to create the site. The amount of advertising money needed and the speed of change in the Internet can make bootstrapping impossible.

Up to half of that money can be spent on advertising! As in many aspects of life, finding a VC is less about your skills or who you are, and more about who you know. Networking has never been more important. To find a VC, you have to use every contact you have. Never miss an opportunity to get a name. You have friends and your friends have friends. Your business associates, attorney, accountant, banker, they all have connections -- use them.

Follow up every lead. Go to every function that VCs attend. Work every room. Keep notes, make lists and use them frequently. Use the Internet. Do whatever it takes to get the names, and then contact them. Venture capitalists review around business plans each week, and eventually invest in about five to 10 businesses per year.

That means you have to knock their socks off with your business plan just to get a meeting. One of the primary things they're going to look at is your management team. They will only invest in companies they feel have a management team with the experience to make the business work.

Relevant experience is very important for your top players. So you may want to rethink your cousin Louie's token position on your board of directors. Once you've gotten a VC's attention, how do you present your idea? First, write out a brief presentation of your business idea in terms anyone will understand.

Don't think using buzz words and technical language will buy you any points with VCs. Explain the following:. Have a short version often referred to as the "elevator" version , and a longer to minute version. If possible, have a PowerPoint presentation and a printed version so you'll be prepared for any situation or need. Make your presentation look professional but not showy. Make sure it paints a clear and concise picture of your business and captures the essence of what you are trying to achieve.

Be prepared to answer any question they can throw at you. Don't guess your way through it, and don't sound like you're guessing your way through it. Have the facts and figures especially financial data to back up what you're saying, and be confident. Just because you've caught the attention of a VC doesn't mean your problems are over. You need to find out if this is the VC for you.

Each of these questions is important in determining whether the VC firm is the right one for your company. Remember, once you've gotten its attention and interest, you're still only half-way there. Also remember to:. There are many creative ways to get the financing you need to get your business off the ground.

Here are just a few to get you thinking. Assets that a borrower pledges in order to secure a loan or other credit. Those assets can then be taken in the event of default on the loan. Capital that is raised via loans, bonds, etc. The reduction in share value resulting when additional shares of common stock are issued, or convertible securities are converted.

A pool of money collected by investment companies from individual investors for purchasing securities in various companies. The guarantee from the owner that in the event that the company cannot pay the loan, he or she will assume personal responsibility for it.

This amount is equal to the number of outstanding shares multiplied by the share price from the latest financing. It usually takes the form of a signed agreement between to the lender and the borrower and specifies all of the terms of the loan sample form. When funding your business venture, you need to decide between debt capital and equity capital. See more corporation pictures.

Your Capital Needs. Seed capital - Seed capital is the money you need to do your initial research and planning for your business. Start-up capital - Start-up, or working capital , is the funding that will help you pay for equipment, rent, supplies, etc. Mezzanine expansion capital - Mezzanine capital is also known as expansion capital , and is funding to help your company grow to the next level, purchase bigger and better equipment, or move to a larger facility.

Bridge capital - Bridge funding, as its name implies, bridges the gap between your current financing and the next level of financing. Types of Capital. Could my company even qualify for debt financing? Am I willing to lose my house if the company goes under? Will I be able to make the monthly payments to pay off the debt? Will the lender give me more money if I need it? Would investors even be interested in my idea? Am I really the control freak people say I am?

Is that a problem? Am I really okay with someone going through my confidential financial information? Am I going to be able to give investors the information they need? Am I going to have a problem sharing my hard-earned profits? Personal savings Borrowing from friends and family Getting a loan from a bank Getting a loan through the U.

Small Business Administration Getting a partner and using his or her personal funds Going through a commercial finance company Going the venture-capital route Lease-based financing and many others that we'll talk about as we go.

Using Personal Funds. Borrowing from Friends and Family. For one, you have to ask them for the money. Getting a Business Loan. Start by asking yourself these questions: For what, exactly, is the loan going to be used? What length should the loan be? What assets can you use as collateral? Helping Your Chances. Some Final Business Loan Tips. When you start the process of visiting banks, do the following: Advertisement. Call first to make an appointment. Dress for success. Have a well-prepared business plan and all financial documents with you.

Be professional. Be overly prepared to answer questions about anything and everything related to your business, your credit history, and your financial status. Show extreme confidence. Be very "matter-of-fact" -- present an air of not being desperate for the money. Be truthful about everything they're going to find out anyway. Don't spend your time "selling" your business idea they don't care.

Keep in mind that they only want to know how they're going to get their money and interest back out of you. The larger your own financial investment in the company is, the better your chance of getting the loan. Venture Capitalists and Angels. Selling Your Idea. Explain the following: Advertisement. The product or service Who your target market is and specifically who your customers will be What your product is costing you to produce What price you are selling your product for How many units you will sell in the first year When your company will be profitable What your long-term growth plans are What your exit strategy is How much money you need How you will spend the money.

Doing Your Research. Do you know anything about the VC firm? Have you talked to any of the companies it has invested in in the past? Do the homework on the VC just as the VC is doing it on you. Get a list of companies and contacts that it has invested in and find out how the relationship has been working for the other start-ups.

Are the companies happy with the relationship? Has the VC been too controlling? Have they gotten what they expected? Have they given good recommendations and had good contacts for other business activities? Have they been accessible and good about returning phone calls? Have the other companies flourished or failed? Have your company's financials in order and preferably very solid. Make sure the terms of the deal are equitable and agreeable to everyone.

Make sure the VC firm has experience in your industry, and understands your market. Try to find a good match of personality types so you have an enjoyable relationship rather than one that is a chore to maintain.

Using Your Assets. Equipment Leasing - Also known as lease financing , this is an excellent way to finance your start-up if your primary need for the cash is to buy equipment. When you lease equipment, you make a monthly payment, but usually have the option to buy the equipment at a fairly decent price at the end of the lease.

Also, by leasing your equipment, you'll be adding no burden to your balance sheet because leases aren't listed. You may also improve your chances of getting other loans because you're building a credit history with the lessor. Factoring - Factoring allows you to collect cash immediately based on your accounts receivable.

If you've had problems getting funding from other sources, then this might be an answer for you. With factoring, you are basically selling your receivables at a discount, so you're not collecting as much as you would if you waited until the customer paid, but you get the cash immediately and can put it back into the business.

Convertible Debt - Convertible debt can be good for everyone as long as you don't mind handing over a piece of the pie. It sets an environment for your lenders that will let them monitor your company's progress, and if your company does well then they have the option of converting their loan into an investment.

Asset-sale Lease-backs - This may work for you if you own a lot of expensive equipment, but have little cash. You can sell your equipment to someone who will then lease it back to you. You get a cash inflow for your company and pick up a monthly payment for the equipment lease. In some situations it is ideal. Purchase Order Advances - As a last resort, you can sometimes use customer purchase orders to gain some funding.

A lender may advance money for sales based on purchase orders you hold. This type of funding has high rates, so use it wisely. Limited Partnerships - You can form a limited partnership for your company. This sets you up typically as the general partner who bears all of the financial risk, while allowing your limited partners to invest funds but not be held liable for losses other than their original contributions.

Check with your state's requirements for limited partnerships. Private Placement - You can offer stock in your company privately without having to register your company under federal securities laws. Check with your state's requirements and have your attorney look into it. Employee Ownership - You can also offer ownership to your employees.

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Financial Planning. Ah, the million-dollar question. Lets look at a specific example, shall we? Well the answer is: it depends. You need to consider inflation and factor in CPP payouts, too. Learn more. Which one should you tap when, to minimize your tax bill? The complexity begins when you consider whether you need monthly income or capital. You could systematically sell off investments as you need cash but that may rack up transaction costs.

While avoiding a high tax bill? A financial plan is key, in this situation. Learn the full strategy. Flipping the switch from accumulation to decumulation can be tricky. Here are strategies to pay the least amount of tax possible when you have spousal RRSPs.

RRSPs are never a waste of time—they might just not be the best tool to achieve your financial goals. Depending on your situation a TFSA might be the better choice, for instance. More details here. Many retirees worry about pre-retirement debt in their golden years. Taking out money from an RRSP to clear your debts might sound like a good idea but there are plenty of considerations to take into account, like immediate tax consequence and whether tapping into retirement funds will leave you wanting in your golden years.

Alta Industries is an electronics firm; Repo Men collects past-due debts; and American Foam manufactures mattresses and other foam products. Given the situation as described, answer the following questions. What are investment returns? Answer: Investment return measures the financial results of an investment. They may be expressed in either dollar terms or percentage terms. Do t-bills promise a completely risk-free return? Answer: The 8 percent t-bill return does not depend on the state of the economy because the treasury must and will redeem the bills at par regardless of the state of the economy.

The t-bills are risk-free in the default risk sense because the 8 percent return will be realized in all possible economic states. However, remember that this return is composed of the real risk-free rate, say 3 percent, plus an inflation premium, say 5 percent. Since there is uncertainty about inflation, it is unlikely that the realized real rate of return would equal the expected 3 percent. Thus, in terms of purchasing power, t-bills are not riskless.

Also, if you invested in a portfolio of T-bills, and rates then declined, your nominal income would fall; that is, t-bills are exposed to reinvestment rate risk. So, we conclude that there are no truly risk-free securities in the United States. If the treasury sold inflation-indexed, tax-exempt bonds, they would be truly riskless, but all actual securities are exposed to some type of risk.

Why are Alta Ind. If the economy is booming, so will Alta. On the other hand, Repo Men is considered by many investors to be a hedge against both bad times and high inflation, so if the stock market crashes, investors in this stock should do relatively well. Stocks such as Repo Men are thus negatively correlated with move counter to the economy. Even Repo Men shares have positive but low correlation with the market.

Here is the calculation for Alta Inds. You should recognize that basing a decision solely on expected returns is only appropriate for risk-neutral individuals. Since your client, like virtually everyone, is risk averse, the riskiness of each alternative is an important aspect of the decision. One possible measure of risk is the standard deviation of returns. What type of risk is measured by the standard deviation? The larger the standard deviation, the higher the probability that actual realized returns will fall far below the expected return, and that losses rather than profits will be incurred.

Draw a graph which shows roughly the shape of the probability distributions for Alta Inds, Am Foam, and T-bills. Suppose you suddenly remembered that the coefficient of variation CV is generally regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns. Calculate the missing CVs, and fill in the blanks on the row for CV in the table above.

Does the CV produce the same risk rankings as the standard deviation? Answer: The coefficient of variation CV is a standardized measure of dispersion about the expected value; it shows the amount of risk per unit of return.

When we measure risk per unit of return, Repo Men, with its low expected return, becomes the most risky stock. We would do similar calculations for the other states of the economy, and get these results: State Portfolio Recession 3. How does the riskiness of this 2-stock portfolio compare with the riskiness of the individual stocks if they were held in isolation?

This is because the two stocks are negatively correlated--when Alta Inds is doing poorly, Repo Men is doing well, and vice versa. Combining the two stocks diversifies away some of the risk inherent in each stock if it were held in isolation, i. Suppose an investor starts with a portfolio consisting of one randomly selected stock.

What would happen 1 to the riskiness and 2 to the expected return of the portfolio as more and more randomly selected stocks were added to the portfolio? What is the implication for investors? Draw a graph of the two portfolios to illustrate your answer.

Thus, by adding stocks to your portfolio, which initially started as a 1-stock portfolio, risk has been reduced. The average correlation between stocks is about 0. A single stock selected at random would on average have a standard deviation of about 35 percent. Thus, by combining stocks into well-diversified portfolios, investors can eliminate almost one-half the riskiness of holding individual stocks.

Note: it is not completely costless to diversify, so even the largest institutional investors hold less than all stocks. The implication is clear: investors should hold well-diversified portfolios of stocks rather than individual stocks. In fact, individuals can hold diversified portfolios through mutual fund investments. By doing so, they can eliminate about half of the riskiness inherent in individual stocks. Should portfolio effects impact the way investors think about the riskiness of individual stocks?

Stand-alone risk is composed of diversifiable risk, which can be eliminated by holding the stock in a well-diversified portfolio, and the risk that remains is called market risk because it is present even when the entire market portfolio is held. If you decided to hold a 1-stock portfolio, and consequently were exposed to more risk than diversified investors, could you expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you could have eliminated by diversifying?

If the return were high enough to compensate you for your high risk, it would be a bargain for more rational, diversified investors. They would start buying it, and these buy orders would drive the price up and the return down. How is market risk measured for individual securities? How are beta coefficients calculated? Answer: Market risk, which is relevant for stocks held in well-diversified portfolios, is defined as the contribution of a security to the overall riskiness of the portfolio.

Run a regression with returns on the stock in question plotted on the y axis and returns on the market portfolio plotted on the x axis. Suppose you have the following historical returns for the stock market and for another company, P. Explain how to calculate beta, and use the historical stock returns to calculate the beta for PQU. Interpret your results. Point out that the beta is the slope coeeficient, which is 0. State that an average stock, by definition, moves with the market.

Beta coefficients measure the relative volatility of a given stock relative to the stock market. Most stocks have betas in the range of 0. Theoretically, betas can be negative, but in the real world they are generally positive. In practice, 4 or 5 years of monthly data, with 60 observations, would generally be used. Some analysts use 52 weeks of weekly data. Point out that the r2 of 0. A portfolio would have an r2 greater than 0. Foam Also, note that t-bills have 0 risk.

We do not yet have enough information to choose among the various alternatives. We need to know the required rates of return on these alternatives and compare them with their expected returns. Write out the security market line SML equation, use it to calculate the required rate of return on each alternative, and then graph the relationship between the expected and required rates of return.

How do the expected rates of return compare with the required rates of return? We have a negative beta stock, hence a required return that is less than the risk-free rate. And Am. Foam plot above it, and Repo Men plots below it. Thus, the t-bills and the market portfolio promise a fair return, Alta Inds and Am. Foam are good deals because they have expected returns above their required returns, and Repo Men has an expected return below its required return. Does the fact that Repo Men has an expected return which is less than the t-bill rate make any sense?

Answer: Repo Men is an interesting stock. Therefore, its required rate of return is below the risk-free rate. Basically, this means that Repo Men is a valuable security to rational, well-diversified investors. To see why, consider this question: would any rational investor ever make an investment which has a negative expected return?