Tutorial 1 (Week 2)

School: Singapore Institute of Technology - Course: FINANCE ACC1005 - Subject: Accounting

ACC1024 Foundations of Finance Tutorial1(Week2) A) Textbook - End of Chapter 1 "Introduction" Questions Q1. Distinguish between investment decisions and financing decisions Ans: An investment decision is a financial decision that the financial manager have to decide on how the firm's resources are invested to bring maximum yield within the needed period. An example of an investment decision is when a firm decided to buy equipment and machinery to boost production. As for financing decisions it is determined by the amount of capital needed from different sources, such as bank loans, equity shares, debentures, and preference shares. Financial decisions include whether or not a firm must pay interest on borrowed funds when it makes losses. What is investment?- Making $ with the capital raised What is finance?- Raising $ Capital - $ raised for investment Sources of financing? Financing methods Internal method - retained earnings, funds that the company has in the accounts External method - money raised outside of the company such as debt ( private debt - loans, public debts - bonds, equity, hybrid securities How one relates to the other? Investors -> companies ($) Q2. Outline theadvantage and disadvantages of asole proprietorship. Ans: Advantages - Business is owned and run by one person. It is easy to create and manage with minimal paperwork and low set-up costs. Disadvantages - Being a sole proprietorship, there will be unlimited personal liability for debts as there is no difference between private and business assets. The life and size of the business is limited with being taxed as a single person. AdvantagesDisadvantages Easy to create-doesn't need a lotof capital upfront-Taking exampleof hawker centre, one ownerUnlimited personal liability -Liable to repay debt using personal assets business, do not need a significant startup capital up front Easy to manage- One personowning thebusiness- One voice thattakeseverything.One reporting officer to make all the decisions - Will have the final say Limited life - If owner dies before the business life, the business will be perished Limited size - Scale of operations is small due to the characteristics of the business of only having 1 owner Q3. Outline theadvantagesanddisadvantages of apartnership. Ans: Advantages - There are two or more people together to operate a business. More business opportunities arises with more productivity and flexibility within the business with more people. Disadvantages - The business is not regarded as a separate legal entity; thus, the owners are jointly liable for the debts of the business and their personal possessions may be sold to pay for the debts. (Likewise, as sole proprietor, each partner is said to have unlimited personal liability) Partnership - having more than 1 partner AdvantagesDisadvantages Easy to create-The partners are personally liable for the debts of the partnership - Can combine thewealth andtalents ofseveral individuals Can be difficult for partners to withdraw their investment Disputes between partners can affect operations