Investments Ch 1 Assignment
Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts.
The cash is a financial asset that is traded in exchange for a real asset, inventory.
Toyota takes out a bank loan to finance the construction of a new factory.
Toyota creates a real asset—the factory. The loan is a financial asset that is created in the transaction.
Toyota pays off its loan
When the loan is repaid, the financial asset is destroyed but the real asset continues to exist.
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years.
The bank loan is a financial liability for Lanni. Lanni's $50,000 IOU is the bank's financial asset. The cash Lanni receives is a financial asset. The new financial asset created is Lanni's promissory note held by the bank.
Suppose that in a wave of pessimism, housing prices fall by 10% across the entire economy. a. Has the stock of real assets of the economy changed? b. Are individuals less wealthy?
A. No. The real estate in existence has not changed, only the perception of its value has. B. Yes. The financial asset value of the claims on the real estate has changed, and thus the balance sheet of individual investors has been reduced.
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. d. Lanni sells the shares of stock for $70 per share and uses part of the proceeds to pay off the bank loan.
In selling 2,000 shares of stock for $140,000, Lanni is exchanging one financial asset for another. In paying off the IOU with $50,000, Lanni is exchanging financial assets .The loan is destroyed in the transaction, since it is retired when paid.
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. C. Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 2,000 shares of Microsoft stock.
Lanni sells the software, which is a real asset to Microsoft. In exchange Lanni receives a financial asset 2,000 shares of Microsoft stock. A new financial asset is created if Microsoft issues new shares.
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software.
The cash paid by Lanni is the transfer of a financial asset to the software developer. In return, Lanni gets a real asset, the completed software