Essay Question Answers

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Department
Business Core
Course
BCOR 1015
Professor
Beth Cross
Semester
Fall

Description
1. A company would need long term funds to pay for fixed assets, aqucations, research and development and trademarks. They would also need them if they want to expand and buy another company or want to take out a big loan. Debt financing is higher risk because you are borrowing money from debt. By leverage which makes good returns great bad returns worse. Or by selling bonds, which if you have to pay interest on. The debt shows up on the balance sheet, although you do not loss control or ownership of your company and the interest rates are tax deducatable. Equity financing is the sale of stock or use of retained earnings. It is less risky but you are giving up owner ship and control to shareholders who can vote within the company. You also have a legal responiblity to pay dividends to the them. a. In terms of the truckin inc. they started with equity financing using retained earnings to fund their needs, but then once they were in the process of buying the other company they were faced with a choice of continuing to use equaity financing by selling either common or preferred stock-which creates dilution. Or move to debt finanincing which is risky because they are borrowing money from debt either through leverage or selling bonds. 2. CSR and FA are connected in a few ways. One is through the big 4, which used to be 8 accounting firms controlling the market but because of unethically decisions they went under. The big 4 is now an olyaglopily and because of that they are charging high prices because they control the market. Also CRS relates to sobrane oxley because it meant to restore consumers faith in big corps and financial accounting resports. It was created to stop fraud on the records, without we would still have fraud today. CSR takes the stakeholders interest into account and doesn’t make unethical decsions, sobrane oxley is preventing unethical choices. GAAP also looks out the good of the people makes it so everyone is one a level playing field…so it’s easy to compare 3. The accounting equation is Assets=Liabilities + owners equity, which is what you own=what you owe plus your net worth. Double entry book keeping keeps the balance sheet in check and balanced. There can be more then 2 entries and it records transcations within a business. Falls under GAAP 4. The federal reserve uses 3 main tools to impact the supply of money, open-market operations which is the buying and selling of government bond, to take money out of the economy. Next is the reserve requirement which is the percent of money the banks must have on hand. If there is inflation they will make the reserve higher. And finally the discount rate which is the interest rate at which the fed loans money to banks. Lower rate=increased money. These tools impact the supply of money through the monartary policy which is where the fed controls the amount of money in the economy. Through lossening and demand stimulus. Loosening lowers interests rates and value of money so people investment more in the economy and stocks. The fed uses these to tools to circulate money in the economy and also if needed take money out of the economy. Without these tools and the f
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