ACC1005 FoF Tutorial 1

Q1.

Investment Decisions Financing Decisions

 How to use the money raised to make  How to raise the money
more money o Internal – retained earnings
o External – private/public

Q3.

Sole Proprietorship
Advantages Disadvantages
 Easy & inexpensive to manage/set-  Unlimited liability
up/dissolve  Limited life
 No conflict of interest – 1  Hard to raise capital funds
owner/manager  Difficulty in transferring ownership

Q4.

Partnership
Advantages Disadvantages
 Low start-up cost  All partners are jointly liable for debts
 Greater borrowing capacity  Limited life – one partner die/ partner
sell their part of the business
 Disagreement between partners

Q5. Advantages of company over sole proprietorship and partnerships:

 Separate legal entity - Limited liability; the company is a person of its own – can only sue the
firm for what it has
 Ability to raise funds
 Ease of transferability
 Unlimited life – even if one s/h dies, the firm still goes on

Q7.

It is due to the time value of money. A dollar today is worth more than a dollar tomorrow due to
inflation. The dollar can be used for investment and gain some potential income.

Q8. Must cover: concept of inflation, demonstrate the concept of borrowing, explain inflation in the
context of borrowing

Inflation – persistent price increase of goods & services over time >> eroding the purchasing power
of money

Borrowing – repayment of principal+interest in full and on time

Inflation in the context of borrowing – the real(adjusted to inflation) would be lesser than the
nominal. However, the company still needs to purchase good and services and economy
Additional Qns

Q1.

Example of financial decisions:

- How to raise funds?

- Strategic Planning – how u gonna position ur business in the upcoming years?

Q2.

Agency problems faced by firms?

- Managers may act in their own interest rather than in the interest of the company.

How to mitigate?

- executive compensation – provide incentives for entice managers to work towards

maximising profit; stock option

Q3.

Q4. ??