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Chapter 10

MGT 3111 Chapter Notes - Chapter 10: Cash Flow


Department
Management
Course Code
MGT 3111
Professor
M. Banks
Chapter
10

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Chapter 10 Essay
Figure 10.1
The three reasons start ups need funding is because of cash flow challenges, capital
investments and lengthy product development cycles.
In regards to cash flow challenges, as a firm grows, it requires an increasing amount of cash to
operate. For example, inventory needs to be purchased. Without inventory, what would the firm sell?
Most important, employees must be paid. If your employees are not paid, they will not continue to work
for you. These must be paid before cash is generated from sales.
Firms usually need to raise money in the early stages to fund capital investments. Capital
investments talks of buying real state and building facilities to produce your product. Fi’s ust also
conside puhasig euipet to podue the poduts as ell. All these osts tpiall eeed a fi’s
ability to provide funds for these needs on its own.
In most industries, firms need to raise money to pay the up-front costs. This is because some
products are under development for years before they actually generate earnings. These up-front costs
ofte eeed a fi’s ailit to fud these atiities o its o.
Cash Flow
Challenges
Inventory must
be purchased,
employees
must be paid,
and advertising
must be paid
before cash is
generated from
sales.
Capital Investments
The cost of buying
real state, building
facilities, and
purchasing
equipment typically
eeeds a fi’s
ability to provide
funds for these
needs on its own.
Lengthy Product
Development Cycles
Some products are
under development
for years before they
generate earnings.
The up-front costs
ofte eeed a fi’s
ability to fund these
activities on its own.
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