Question

Investment and financing decisions Vocabulary test. Explain the differences between:
a. Real and financial assets.
b. Capital budgeting and financing decisions.
c. Closely held and public corporations.
d. Limited and unlimited liability.

Answer 1

a)	Real estate	Financial asset
	Real assets are physical assets that have value due to their substance and properties	Financial assets derive their value from an underlying assets that can be real or intangible
	Precious metals, commodities, real estate	Commodity futures, ETFs, REITs
b)	Capital budgeting	Financing decision
	It evaluates the costs and benefits of long-term assets	It evaluatesavailability of funds to meet the budget obligations
	In this process,decisions are made on the basis of examining and comparing returns, cash flows and risks.	It considers different sources of financing such as debt and equity in decision making
c)	Closely held corporations	Public corporations
	It is owned by private individuals or has limited number of shreholders	It has vast number of shareholders
	The original ownership has more decions taking powers	The original ownership has less control over the company