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Who receives money in a firm?
Someone who receives money in a firm is called a treasurer
How can leverage be used to increase a firm's profitability?
Leverage utilizes other people's money in the form of loans, to make the firm's existing money do more. Say a firm (or an individual) has $10,000 in capital, and an opportunity to make a 10% profit on an particular venture. That means they have the opportunity to realize a $1000 profit. If however, that venture, or some other, can return 10% on an even greater amount of money, say $100,000, the return would be $10,000. If the firm's $10,000 will allow it to get a loan for 90% of the venture, then the firm will keep the return from the $100,000 venture ($10,000), so that the profit is 100% rather than 10%. Of course, there will be costs associated with borrowing and repaying the $90,000, let's say $1000. The firm's profit is now $9000, still 9 times the return from a non-leveraged investment. So borrowing money to increase the power of your own money is what leverage is. Anyone who has a home mortgage is using leverage. The time period doesn't matter, the principle is the same. And it's possible to be 100% leveraged, that is to have no money of your own in a venture. The downside is, if the venture doesn't pay off or loses money. The loss gets leveraged back to the borrower. A $10000 dollar investment that loses 40% costs the firm $4000. A blow, but maybe survivable. That 90% leveraged $100,000 deal, if it loses 40%, costs the the firm $40,000, which could be crushing.
Why is the coupon rate a bad estimate of a firm's cost of debt?
A coupon rate is not a good estimate of a firm's cost of debt, as it is only a reflection of the firm's cost of debt when bonds were issued, not the current cost of debt. It's not representative of the yield in the current market.
How are the collections and purchases schedules related to the borrowing needs of the corporation?
Collection and purchase schedules allow a firm to track monthly cash flows. The collections and purcase schedules measure the speed at which receivables are collected and purchases are paid. To the extent collections do not cover purchasing costs and other financial requirements, the firm must look to borrowing to cover the deficit.
What do you call the money that a firm makes?
Income
