Topics: Corporation, Corporate finance, Balance sheet Pages: 4 (1000 words) Published: September 24, 2014
Assignment 2-2 (FIN-101 )
Critical Thinking Questions :
1.1 - Describe the cash flows between a firm and its stakeholders . Cash flows are generated by a firm’s productive assets that were purchased through either issuing debt or raising equity. These assets generate revenues through the sale of goods and services. A portion of this revenue is then used to pay wages and salaries to employees, pay suppliers, pay taxes, and pay interest on the borrowed money. The leftover money, residual cash, is then either reinvested back in the business or is paid out to stockholders in the form of dividends .

1.2 - What are the three fundamental decisions the finance team is concerned with, and how do they affect the firm’s balance sheet ? The primary financial management decisions every company faces are capital budgeting decisions, financing decisions, and working capital management decisions. Capital budgeting addresses the question of which productive assets to buy; thus, it affects the asset side of the balance sheet. Financing decisions focus on raising the money the firm needs to buy productive assets. This is typically accomplished by selling long-term debt and equity. Finally, working capital decisions involve how firms manage their current assets and liabilities. The focus here is seeing that a firm has enough money to pay its bills and that any spare money is invested to earn to earn a return .

1.3 - What is the difference between stockholders and stakeholders ? Stockholders, also referred to as shareholders, are the owners of the company. A stakeholder, on the other hand, is anyone with a claim on the assets of the firm, including, but not limited to, shareholders. Stakeholders include the firm’s employees, suppliers, creditors, and the government .

1.4 - Suppose that a group of accountants want to start their own accounting business. What organizational form would they most likely choose, and why ? Most lawyers,...
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