chap013 - Chapter 13 The Financing Business Process Review...

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Chapter 13 The Financing Business Process Review Questions R1. What is the primary objective of the financing business process? The objective of the financing business process is to have the liquid funds needed to run the business without allowing cash to sit idle. By having sufficient cash available or on hand the company can obtain favorable quantity and cash discounts. Payment of obligations in a timely manner helps to ensure the enterprise will be able to obtain additional financing with favorable terms when needed in the future. R2. How is the financing process related to the conversion process, the sales/collection process, the acquisition/payment process, and the payroll process? The financing process typically provides cash to the acquisition/payment and payroll processes to use in acquiring goods, services, and labor. The sales/collection process typically provides cash to the financing process to use in satisfying financial obligations. There is typically no direct connection between the financing and conversion processes. R3. What is the difference between a bond certificate and a stock certificate? A bond certificate is a document that represents a debt financing agreement. A stock certificate is a document that represents an equity financing agreement. Bond certificates usually specify determinable dollar amounts and timings of the cash inflows (loan proceeds) and of the cash outflows (loan repayments). That is not to say that the exact dollar amounts are certain; in fact, the exact dollar amounts may vary depending on the timing of the cash flows. Stock certificates represent an ownership interest in the enterprise as indicated by the determinable dollar amount and timing of the cash inflow (stock proceeds); however, the cash outflows (dividend payments or stock re-purchases) are less certain as to both the timing and the dollar amounts. Investors buy enterprise stock certificates (and thus provide cash to the enterprise) with the expectation of getting cash back in the form of dividend payments and capital appreciation such that the investor can sell the stock in the stock market for more than the amount
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chap013 - Chapter 13 The Financing Business Process Review...

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