FM 7 (3223) TTh 10:30am – 12:00pm

Flow of Funds Exercise

Group Members:
Ababon, Desirre
Canteros, Lawrence
Latorza, Ericka

A. Carson is a surplus unit, which means its operations create profits and
positive cash flows. These gains might be reinvested in the company or
used to repay debts and other commitments. Carson invests in Treasury
securities and thereby contributes cash to the Treasury, the issuer of
those assets. Carson is a surplus unit because it has assets of around
$100 million and makes sales of approximately $50 million per year,
implying that it has more assets and revenue than it requires for its
operations.

B. Carson is a deficit unit when it needs more money for its expansion
ambitions, whether through loans, bonds, or stock issuance. During its
growth phase, it may face a funding shortage for its aggressive
expansion.
C. To facilitate Carson’s expansion, financial companies can provide loans
to Carson to their expansion projects, whether it's to build new facilities,
invest in research and development, or expand their product lines. These
loans can come with competitive interest rates and repayment terms
tailored to Carson's needs.
D. Commercials play an important part in business since they help
companies expand. Commercia l banks help businesses finance their
operations, investments, and development plans by offering a variety of
lending products such as commercial loans, lines of credit, and equipment
financing. Commercial banks, like financial institutions, can enable and
support Carson Company's development.
E. Carson might have limited access to further debt financing throughout
its expansion period due to concerns about its debt capacity or credibility.
If Carson is seen to be a high -risk borrower, lenders may be hesita nt to
give additional credit.
F. Securities firms can assist Carson in issuing stocks or bonds to raise
capital for expansion. They can underwrite the issuance, helping Carson
navigate regulatory requirements, pricing the securities appropriately, and
distributing them to investors in the financial markets.
G. It may use the primary market to issue additional securities. Carson
Company may use the primary market to promote its growth by issuing
more stock units in the future in order to raise additional fu nds for the
company's expansion.
H. Carson may use the secondary market to exchange its Treasury
securities or previously issued bonds. This offers liquidity, allowing
Carson to sell these assets if necessary.
I. Carson may be able to lessen its dependenc y on financial institutions
for specific financial activities in a perfect world of financial markets by
managing risks, effectively allocating resources, directly accessing
capital, and utilizing the information and services offered by healthy
markets. It 's necessary to remember that actual financial markets are not
flawless and that financial institutions are still essential for facilitating
economic activity, managing risks, supplying liquidity, and acting as a
middleman between investors and borrowers.
J. Carson's commercial bank loans include a provision that requires
clearance before pursuing significant projects, which serves as a risk
management precaution. It enables the bank to examine the viability and
risk of such initiatives, safeguarding both t he bank's interests and
Carson's financial stability. This condition helps the company's owners by
allowing them to access essential cash while also guaranteeing that the
bank has a role in important investment choices, so protecting the
company's financia l health and the owners' interests. P