Assignments No 2

1. Identify and compare the sources and uses of income. 

 Income derived from job or self-employment includes wages or salaries, interest from
loans, dividends from stock ownership, and draws from partnerships. The uses of income
is to add for the capital and to allocate it to the activities that are needed.
2. Define and illustrate the budget balances that result from the uses of income. 
 In financial planning or the budgeting process, a balanced budget is one in which total
anticipated income and total anticipated expenditures are equal. In contrast, a budget
deficit occurs when spending exceed receipts. Due to the necessity of borrowing money
to cover costs, budget shortfalls always result in mounting debt.
3. Outline the remedies for budget deficits and surpluses. 
 It's crucial to keep track of how much money you earn each month. This is crucial
whether you hold many jobs, work irregular hourly shifts, operate as a contract or
independent contractor, or get funding. Knowing how much money you bring in each
month and how much money you spend each month is equally crucial.
4. Define opportunity and sunk costs and discuss their effects on financial decision making.
 Money which has already been invested and cannot be recouped is known as a sunk
cost. The sunk cost phenomenon in business is an example of the notion that one must
"spend money to make money." Understanding the potential missed opportunities when
a business or individual chooses one investment over another allows for better decision
making. Understanding the potential missed opportunities when a business or individual
chooses one investment over another allows for better decision making.
5. Identify the purposes and uses of assets. 
 The balance sheet of a business lists assets. They are divided into four categories:
tangible, financial, fixed, and current. An asset may be looked of as something that, in the
future, can generate cash flow, lower expenditures, or enhance sales, regardless of
whether it's manufacturing equipment or a patent. Assets are purchased or generated to
raise a company's worth or benefit the firm's operations.
6. Identify the types of assets. 
 Short-term assets, financial investments, fixed assets, and intangible assets.
7. Explain the role of assets in personal finance. 
 An asset has the ability to generate revenue, cut costs, and preserve value. An asset
must either hold money or provide income in order to be valuable as an investment.
8. Explain how a capital gain or loss is created.
 When an asset's selling price is higher than its original acquisition price, a capital gain is
realized. It is the discrepancy between the asset's selling price, which is greater, and cost
price, which is lower. When the cost price is more than the selling price, capital loss
results.
9. Define equity and debt. 
 Debt is a financial term that describes sources of funds that are obtained through loans
that demand interest payments. Being a lender's creditor in this way is a manner of
becoming one. Equity, on the other hand, refers to a method of financing a business
venture through the issuance of company shares, with shareholders receiving dividends
in exchange for their investment.
10. Compare and contrast the benefits and costs of debt and equity. 
 Equity capital, which does not require repayment, is obtained via the issuance of ordinary
and preferred shares as well as through retained earnings. Both debt and equity capital
supply firms with the funds they need to sustain their daily operations. Retained profits
and the issuance of ordinary and preferred shares are two ways to raise equity capital,
which is not repaid.
11. Illustrate the uses of debt and equity. 
 If the company is expanding quickly, debt may be a less expensive source of expansion
capital. Equity is defined as a company's capital that is raised and then utilized to fund
operations, invest in projects, and buy assets.
12. Analyze the costs of debt and of equity.
 The effective rate that a business pays on its debt, such as bonds and loans, is known as
the cost of debt. The other component of a company's capital structure is equity.
Depending on who is speaking, the term "cost of equity" might relate to one of two
distinct ideas. The needed rate of return on an equity investment, if you're the investor, is
known as the cost of equity.
13. Describe how sources of income may be diversified. 
 You have a better personal safety net if you diversify your income in case you lose your
job or encounter another unforeseen hardship. Additionally, corporate experimentation is
a benefit of diversity. Furthermore, you never know where it could take you. It's nearly
always simpler to keep a current client than to find a new one, provided you perform
decent job. Make it simple for a customer to go into a bigger project with you when you
finish a project for them by upselling them on another service, course, or program.
14. Describe how investments in assets may be diversified. 
 Choose assets from a range of sectors and industries. Whether financing in private
equity, research market patterns for the private firms you're considering, and pick
businesses in sectors with a lot of industry overlap.
15. Explain the use of diversification as a risk management strategy.
 By spreading investments over numerous financial instruments, sectors, and other
categories, diversification is an approach for lowering risk. By making investments in
many sectors that would each respond to the same occurrence differently, it seeks to limit
losses.