Incremental Costs: cost increases resulting from performance of an additional activityAvoidable Costs: the cost that must be incurred to preform an activity at a given level, but can be avoided if that activity is stopped or reducedSunk Costs: are past costs incurred by the company (not relevant)Opportunity Costs: forgone benefits of the next best alternativeFINPLN 2183 1st EditionExam # 1 Study Guide Lectures: 1 - 5Lecture 1 (January 27) Incremental Costs: cost increases resulting from performance of an additional activity Avoidable Costs: the cost that must be incurred to preform an activity at a given level, but can be avoided if that activity is stopped or reduced Sunk Costs: are past costs incurred by the company (not relevant) Opportunity Costs: forgone benefits of the next best alternativeLecture 2 (January 29) Financial Statements – assessments of the current status of a household’s financesIncome Statement – a statement that traces the flow of income and expenses for a period of time• Represents monthly budgets for an extended period of time, usually one year• Forecasting future income and expenses-planning tool• Not a backward looking journal of how you spent your moneyBalance Sheet – a statement that lists the current value of assets and liabilities at a point in time• Outlines the household’s assets (what it owns) and its liabilities (what it owes)• The difference represents net worth or equity • Represents a snapshot of assets and liabilities at a single point in time • Assets are generally listed in terms of how easily they can be converted tocash • Liabilities are generally listed in the order in which they are dueLecture 3 (February 3)Why money has time value– Risk of not getting your money back– Risk of inflation– Opportunity cost• You have to give up something when you invest (you can’t use the money for something else)• Because money has time value you should expect to earn interest on an investment• The value of a dollar grows or declines through time• Sometimes referred to as “discount rate”Lecture 4 (February 5)• Annuities: cash flow that takes place more than once. – Cash flow (payment) can be money received by you or leaving you.• Ordinary Annuity: cash flows that take place at the end of each period• Annuity Due: cash flows that take place at the beginning of the periodLecture 5 (February 10)- Budget• Normally prepared on a monthly basis• Should reflect your personal goals• Designed to monitor and control expenses (watch spending)• A budget should never deprive you of what you need• Budgeting process involves:– Assessing expected income– Deciding how much to allocate– Keeping records of actual income, spending, and saving– Evaluating your budget• What are some records worth keeping?– Credit card statements, taxes, investment statements, household inventories, car titles, wills, pay stubs, warranties, journals, photos, social security cards, diplomas, wedding and family