2.4 Comprehension

2.4.1 Answer the questions using your active vocabulary

1. Why is money one of the primary considerations when going into business?

2. What are two basic types of financing?

3. How do corporations receive their starting capital?

4. What is financial management concerned with?

5. Why is it necessary to make wise financial decisions?

6. What actions should be undertaken or avoided according to the profit maximization goad?

7. What are the reasons for the opposition, concerning the profit maximization criterion?

8. Compare the principles “the bigger the better” and “the earlier the better” relative to profitability?

9. Do you agree that benefits in early years should be valued more highly than equivalent benefits in later years? Prove your answer.

10. How do you understand the phrase that “the investors are risk averters”?

11. What two important dimensions of financial analysis does the profit maximization criterion ignore?

2.4.2 Mark these statements t(true) or f(false) according to the information in the text. If they are false say why.

1. Financial management is concerned with decision – making in regard to the size and composition of assets and the level and structure of financing.

2. With the help of decision criterion one can judge a specific set of mutually inter-related business decisions, namely, investment, financing and credit policy.

3. According to profit maximization criterion actions that increase profits should be avoided and those that decrease profits are to be undertaken.

4. Profitability refers to a situation where input exceeds output.

5. Profit is a test of economic activity.        

6. The main technical flaws of profit maximization criterion are ambiguity, timing of benefits and quality of benefits.

7. While working out profitability, the earlier the better principle is adopted.

8. Benefits in early years should be valued more highly than equivalent benefits in later years.   

9. The more certain the expected return, the lower the quality of the benefits.

10. The more uncertain or fluctuating the expected benefits, the higher the quality of benefits.  

11. The profit maximization criterion ignores risk and time value of money.

12. How well a company manages its finance affects the overall success of the   business venture.     

13. Equity financing provides the corporation with enough capital to start up, operate and expand its business.

14. Equity financing refers to funds that are borrowed from sources outside the corporation.  

15. The corporation must turn to debt financing if equity financing does not provide it with enough capital.

2.5 Language practice

2.5.1 Match the English word combinations in the left-hand column with the definition in the right-hand column.

1. management	a. satisfy
2. finance	b. give one a right
3. data  processing	c. the acquisition and utilization of capital in order to start up, operate and expand a company.
4. interest payment	d. amount and share of income which is paid to  the owners of business
5. obligation	e. the contract or promise that compelsone to follow a certain course of action.
6.authorize	f. a sum paid for borrowing money
7.profit	g. the value created by the use of resources is more than the total of theinput resources.
8. issue	h. the handling of large amounts of information generated by business
9. meet	i. the activities guiding a company toaccomplish its objectives.
10. dividend	j. print for sale or distribution