How Do Mortgages and Bonds Work? Essay Example

What are some reasons that capital asset acquisition decisions receive particular attention?

It is important to provide particular attention to capital asset acquisition decisions because while budgets appropriate how money will be used during a particular year, capital assists will help provide the organization acquire goods and services past the initial year of investment. Since these investments could be costly and there is no price limit, it is necessary to make decisions regarding their acquisition carefully to ensure that they will be profitable. Additional aspects that should be considered is that the initial cost for these items is large, the items can generally be kept for a long time, the financial impact of the asset could only be understood it is evaluated over a long period of time, and the time value of money must be thought about.

Do capital budgets have an impact on operating budgets? Explain your answer thoroughly.

Capital budgets are typically prepared separately from operating budgets. While these concepts are related, they do not have a large impact on one another, as the capital budget takes into consideration the revenue that an asset will produce while the operating budget only considers the funds that will be spent for its purchase. The major difference between these two types of budgets, therefore, is that the cost of an expense will be reflected in the operating budget for the year that the purchase was made, and the profit related to the purchase will continue to be reflected in the capital budget for as long as it is relevant. A portion of the capital budget is included in the operating budget each year.

How do mortgages and bonds work?

Mortgages and bonds both function as loans, but are acquired and paid off differently. Mortgages are loans that are secured by a particular asset, the most common of which is real estate. These assets serve as collateral so that the investor has insurance that if the loan is not paid back, they will be able to seize the asset. There are a variety of different payment types available, including providing the financial institution equal amounts of pay each month, or allowing the payment amount to be based on the amount of money that is left to be paid. Bonds are agreements for money to be borrowed and repaid for a predetermined maturity value at the end of a given period of time. Bond obligation is transferable, meaning that individuals who were not initially involved in the purchase of the bond may acquire it through sales.

Summarize the advantages and disadvantages of leasing. Provide an example in your response.

The advantages of leasing are that it allows individuals to have more flexibility, save money, protect them from unexpected events, can provide a higher level of financing, and have tax advantages. An example of this is when an individual leases a car. Since they only have the car in their possession for a short period of time, they will pay less money for the car than they would if they were to buy it. Furthermore, many car dealerships have plans in place that protect the leased car if it becomes damaged, to ensure that they will be able to later sell the car to another individual after the terms of the lease have ended. The disadvantage of leasing is that it is more expenses than purchasing assets. For example, it is more expensive to keep leasing different cars than it would be to own a single one for the same duration of time. As a result, those who buy their cars will likely save more money long-term.