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12 Cards in this Set

  • Front
  • Back

Two main values of money

Exchange value, storage value

Time value of money

Idea that money available at the present time is worth more than the same amount in the future due to its potential earning potential

2 things you can do with money to keep it from sitting empty

Rent it out


Sell it

2 important factors to consider when deciding how to make money on our money

Need for liquidity,


Tolerance for risk

3 reasons a business may need money from Finely

Start new ventures


Fund Growth


Manage Cash Flows

2 ways to get access to someone else's money that's in storage

Rent it (debt financing)


Give them part of the business 4 money (equity financing)

Leverage

the use of debt financing

Borrowing money to acquire assets works if...

The asset appreciates (increase) in value


the income from the asset covers the interest and debt repayment obligation (DPR)

Leverage is risky when...

interest and debt repayment obligation is greater than the income earned by the asset




The asset depreciates faster than the debt is repaid

basic measure of Return on Investment (ROI)

measures how well an investment is doing.




ROI= (Net Profit/Total Investment) x 100

Risk/Return Trade-off

Investors expect a higher ROI for riskier investments

2 purposes of ratio analysis

to see if a company is healthy




to see how well a company is performing