Deciding on appropriate discount rate o Calculating present values above 3 components o Accepting all projects with positive NPV o 7.1.3. Risk and uncertainty are that it does not take risk into account Limitations = any deviation from expected outcome Risk = unable to id certain variables and unable to assess likelihood of their Uncertainty occurrence analysis take risk into account Sensitivity 8. Financing making decisions about: Entails Types of finance o Sources of finance o 8.1. Financial markets any point a financial system consists of those that have a surplus of money and those At withshortage business requires funds for new investment or to expand production Growing markets is a channel where make their money available to those who Financial “savers” have ashortage thereof institutions act as intermediaries financial intermediation Financial – is process where financial inst pool money and make it available to business It saver who invests in a business is called financer The receives an assets or financial claims in exchange for his money Financer claims can be: Financial Saving and Cheque call accounts o Fixed deposits o Debentures o Ordinary preferred shares o referred to as financial securities Shares 8.2. Primary and secondary markets issues a financial claims are referred to as issues on the primary market New of securities after they have been issued takes place in secondary market Trading who needs money can trade claim of secondary market Saver eg of secondary market JSE of securities ensure that savers continue to invest Tradability 8.2.1. Money and capital markets market is market for financial instruments with a short term maturity Money are borrowed and lent overnight or for months Funds required for long term investment are raised and traded by investors on capital Funds market 8.2.2. Types of institutions institutions: Financial Deposit taking institutions o reserve bank SA and agricultural bank Land
o Deciding on appropriate discount rate o Calculating present values above 3 components o Accepting all projects with positive NPV 7.1.3. Risk and uncertainty Limitations are that it does not take risk into account Risk = any deviation from expected outcome Uncertainty = unable to id certain variables and unable to assess likelihood of their occurrence Sensitivity analysis take risk into account 8. Financing Entails making decisions about: o Types of finance o Sources of finance 8.1. Financial markets At any point a financial system consists of those that have a surplus of money and those withshortage Growing business requires funds for new investment or to expand production Financial markets is a channel where “savers” make their money available to those who have ashortage thereof Financial institutions act as intermediaries – financial intermediation It is process where financial inst pool money and make it available to business The saver who invests in a business is called financer Financer receives an assets or financial claims in exchange for his money Financial claims can be: o Saving and Cheque call accounts o Fixed deposits o Debentures o Ordinary preferred shares Shares referred to as financial securities 8.2. Primary and secondary markets New issues a financial claims are referred to as issues on the primary market Trading of securities after they have been issued takes place in secondary market Saver who needs money can trade claim of secondary market JSE eg of secondary market Tradability of securities ensure that savers continue to invest 8.2.1. Money and capital markets Money market is market for financial instruments with a short term maturity Funds are borrowed and lent overnight or for months Funds required for long term investment are raised and traded by investors on capital market 8.2.2. Types of institutions Financial institutions: o Deposit taking institutions SA reserve bank Land and agricultural bank
MNB1601-NOTES-Chapter_13_study_unit_7_mnb1601.docx