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Chapter 10 Notes Financing and Producing Goods

Chapter 10 Notes Financing and Producing Goods Section 1 – Investing in the Free Enterprise System I. Turning Savings Into Investments A. Financing business operations and growth is an important part of the free-enterprise system .

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Chapter 10 Notes Financing and Producing Goods

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  1. Chapter 10 Notes Financing and Producing Goods Section 1 – Investing in the Free Enterprise System I. Turning Savings Into Investments A. Financing business operations and growth is an important part of the free-enterprise system. B. People deposit funds into financial institutions, which makes these funds available to businesses. C. The movement of these funds creates economic growth and expansion.

  2. II. Before You Pursue Financing A. Cost-benefit analysis—weigh cost against benefits B. Estimate costs of expansion. C. Calculate expected income. D. Calculate expected profits. E. Calculate cost of loans. F. Undertake an activity up to the point at which the additional benefit equals the additional cost.

  3. III. Why are People Willing to Finance Investment A. People who finance investments seek rewards. B. Interest earned on loan C. Dividends from the stock D. Personal stake in the company E. The same individual is sometimes both the borrower and the lender.

  4. IV. Pursuing Investment Financing A. Resources go where they generate the highest expected value. B. Businesses compete for scarce financial resources. C. There are many methods of financing: bonds, stocks, loans, and the Internet.

  5. Sec. 2 – Types of Financing for Business Operations I. Three Kinds of Financing A. Short-Term Financing is when the term of loan is less than one year; used for short term needs. B. Intermediate-Term Financing is when the term of the loan is 1 to 10 years; used when a company wants to expand through land, buildings or equipment. C. Long-Term Financing is when the term of loan is longer than 10 years; used for major expansion.

  6. II. Choosing the Right Financing A. Interest costs—higher interest rates make companies more likely to take out short-term loans in hopes that interest rates will drop. B. Financial condition of company—is company too indebted? C. Market climate D. Control of the company—sometimes stockholders have to give approval before financing decisions can be made.

  7. Sec.3 – The Production Process I. Steps in Production Operations A. Consumer goods are sold directly to individuals as they are. B. Capital goods are products used to make other goods. C. Planning step: choosing where to locate the business and how to get the product to consumers (scheduling). D. Purchasing step: obtaining raw materials, machines, and supplies E. Quality control: checking the quality of your products F. Inventory control: taking an inventory of materials used in production

  8. II. Technology and Methods of Production A. Mechanization: combining the labor of people and the power of machines. B. The assembly line C. Division of labor: breaking down of jobs into smaller tasks. D. Automation: machines do the work while people oversee. E. Robotics: complicated computer-controlled machinery used to operate assembly lines.

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