Answer:
True
Explanation:
Collateral is an asset used as a guarantee or security for the payment of a loan. It assures the lender that a borrower will pay back the loan.
If an entrepreneur applies for a business loan, the bank will most likely demand collateral. The entrepreneur will need to offer an asset, either property or motor vehicle, that will act as a guarantee for the loan. Should the entrepreneur fail in repayment, the bank can sell the asset to recover their money.
Few, if any, will lend anyone money based on a business idea alone. Many banks will demand a business proposal to be backed with some guarantee to secure funding.
7 Common Costs Associated with Operating a franchise
Exactly how much a franchise costs is different for every franchise company out there, but most of them have similar startup costs. While the franchisor will help you with some of these costs — maybe through deals it has with preferred vendors or by lending you the money — the onus will be on you to come up with the funds on your own. And it’s not just funds to build and open your franchise, you will also need funds to run it until it becomes profitable.
Let’s take a look at some of the most common costs associated with opening a franchise.
Franchise Fee
When opening a franchise, it’s important to remember that you are essentially “renting” the brand from the franchise. That brand comes with a lot of support and recognition, but you still have to pay for the privilege of being associated with it.
Franchise fees can be as little as $20,000 or as much as $50,000 or even more. The amount of the fee usually depends on how much you have to do to get the franchise up and running. Franchises that require you to build a location will be more than a mobile or home-based franchise, for example.
Your fee will usually cover the cost of your training and site selection support, hence why the fee is higher for businesses that require a location. Exactly what the fee covers is different for each franchise. Sometimes it will just act as a licensing fee for the rights to use the brand. When you are doing your initial research, be sure to find out exactly what your franchise fee covers.
Legal and Accounting Fees
These fees are on you, of course, but they are well worth it. Any person who is considering purchasing a franchise should absolutely consult with an attorney who is familiar with franchise law. The attorney you hire can review the franchise disclosure document with you and go through the franchise agreement to make sure it’s fair.
Each attorney will charge differently for this and it will largely depend on how much time your attorney has to spend on the documents, but you’ll probably have to budget between $1,500 and $5,000 for this.
It’s also a good idea to start working with a qualified accounting firm as soon as you decide to purchase a franchise. An accountant can help you set up your books and records for the company and can also help you determine how much working capital you’ll require to get your business set up and have it run until it becomes profitable.
Working Capital
Speaking of working capital, this is the amount of cash that is available to a given business on a day-to-day basis. It’s crucial to have enough working capital to cover a given length of time. This could be just a few months, or it could be a few years. It depends on how much time the business will need to start bringing in enough revenue for it to run.
Franchisors do generally provide an estimate of how much working capital you’ll require, but you should back this up with your own research and do your own calculations with the help of your accountant. Talk to other franchisees in the system about how much they needed.
Build-Out Costs
Build-out costs include constructing the building and purchasing all the furniture, fixtures, equipment, signage and anything else related to the building such as architectural drawings, zoning compliance fees, contractor fees, decor, security, deposits, insurance and landscaping. Your franchisor will give you an estimate of build-out costs, which vary widely between franchises.
If you choose a home-based franchise, obviously there will not be any buildout costs associated with it, but there may be other expenses like vehicles.
Supplies
These are all the things you require to run your franchise. Restaurants will need food, of course, but they also need plates, cutlery and napkins. Other franchises will need different things to offer their services. Your franchisor can give you a list or estimate of what you will need to run your franchise.
Inventory
If you are purchasing a retail franchise or some other kind of franchise that sells products, you will need inventory. This is another cost that will vary widely between franchises, but your franchisor should be able to help you with estimates. You might have to purchase between $20,000 and $150,000 worth of inventory depending on the business.
Travel and Living Expenses During Training
Franchisors will provide training for franchisees and often the franchisee’s management team. While the training itself is usually covered by the franchise fee, the travelling and living expenses to go to a franchise’s headquarters for that training may not be covered. Often, training runs from a few days to a week or so and is followed up with more training back at the franchisee’s location.
You’ll want to determine whether travel and accommodation are covered by your franchisor and, if not, work out how much the training related expenses will cost you.
Case-A
par value of bonds 500000
The stated rate of interest 7%
The market rate of interest 7%
As stated and the market rate of interest is equal, the bonds are issued at par value.
Therefore,
Cash received from issuance of bonds 500000
Interest expense (500000*7%) 35000
Cash paid for interest in Year-1 35000
Cash paid fat Maturity 500000
A market economic system is a monetary gadget where forces, called supply and demand, direct the production of goods and services. marketplace economies aren't managed through a government (like a central authority) and are instead based on voluntary exchange.
A market economic system is a financial machine in which the choices concerning investment, production, and distribution to the clients are guided with the aid of the fee indicators created with the aid of the forces of delivering and call for, wherein all suppliers and purchasers are unimpeded by way of charge controls or restrictions on contract freedom.
A marketplace is defined because of the sum general of all the buyers and dealers inside the region or area below consideration. The vicinity may be the earth, or international locations, regions, states, or cities. The cost, value, and charge of gadgets traded are as consistent with forces of delivery and demand in a marketplace.
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