BUSN 70 Lecture Notes - Lecture 42: Preferred Stock, Operating Lease, Olanzapine
13 Mar 2021
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Long-term (fixed) assets = production facilities (plants), offices, and equipment all of which are expected to last for many years. Modern facilities and equipment are expensive, requiring long-term financing. Capital lease is a long-term contract and shows up on the balance sheet as an asset and liability. Operating lease is a short-term cancelable lease and does not show up on the balance sheet. Capital budgeting = the process of analyzing the needs of the business and selecting the assets that will maximize its value. This process continues after purchase as all assets and projects must be continually reevaluated against the company"s needs. Budgeting is not an exact process and managers must be flexible. Introduce a new product in foreign markets. Introduce a new product in a familiar market. The longer a project or asset is expect to last, the greater its potential risk because it may become obsolete or wear out prematurely.
