benefit

(noun)

An advantage, help, or aid from something.

Examples of benefit in the following topics:

  • Externalities

    • The cost of an externality is a negative externality , or external cost, while the benefit of an externality is a positive externality, or external benefit.
    • Producers and consumers may neither bear all of the costs nor reap all of the benefits of the economic activity.
    • A voluntary exchange may reduce total economic benefit if external costs exist.
    • If there are external benefits, such as in areas of education, too little of the good would be produced by private markets as producers and buyers do not take into account the external benefits to others.
    • Here, overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved.

  • Trade-Off Consideration

    • Trade-off considerations are important because they take into account the cost and benefits of raising capital through debt or equity.
    • The trade-off theory of capital structure refers to the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits.
    • It states that there is an advantage to financing with debt—the tax benefits of debt, and there is a cost of financing with debt—the cost of financial distress including bankruptcy.
    • The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases.
    • Trade-off considerations are important factors in deciding appropriate capital structure for a firm since they weigh the cost and benefits of extra capital through debt vs. equity.

  • Benefits and Risks of Operating Leverage

    • As in any situation of this sort, added risk can produce benefits for a firm, but it can also lead to detrimental consequences.
    • When considering the benefits of operating leverage, it is appropriate to consider the contribution margin, or the excess of sales over variable costs.
    • Identify the types of companies that would benefit from higher operating leverage

  • Benefits of Repurchasing Shares

    • For shareholders, the primary benefit is that those who do not sell their shares now have a higher percent ownership of the company's shares and a higher price per share.
    • Strictly speaking, this is a benefit to the management and executives, not the company or the shareholders.

  • Contractual Saving

    • Pension funds are another contractual savings institution.Many people save money for retirement, and pension funds become a vital form of saving.Some employers sponsor pension funds as a job benefit, or workers can voluntarily pay into personal retirement accounts.Then the financial companies manage the pension funds, and they invest pension funds into the financial markets.Pension fund managers can accurately predict when people will retire and usually invest in long-term securities, such as stocks, bonds, and mortgages.A person can only receive benefits from the pension fund after the person becomes vested.Vested means employees must work for their employer for a time period before they can receive the benefits from the pension plan.Time period varies for the pension funds.For example, some city governments require a person to be employed by the city for 10 years before this person becomes 100% vested in the city's pension plan.
    • Employers have three reasons to offer pension plans to employees.First, the pension fund managers can more efficiently manage the fund, lowering the pension funds' transaction costs.Second, the pension funds may offer benefits such as life annuities.A life annuity is a worker contributes money into the annuity until he retires.Then the worker receives regular payments every year from the annuity until his death.Life annuities could be expensive if a worker buys them individually.However, a large employer with many employees can request discounts from pension plans.Finally, the government does not tax the pension fund as workers invest funds into it, allowing the fund to grow faster.Nevertheless, government usually imposes taxes on withdrawals from a pension fund.If the employer offered higher wages and no pension plans to the employees, then the government taxes the greater income, reducing the amount an employee could invest into a retirement plan.
    • Employers have two choices for the ownership of a pension plan.First, employees own the value of the funds in the pension plan, called a defined contribution plan.If the pension fund is profitable, subsequently, the retired employees will receive greater pension income.If the pension fund is not profitable, then the retired employees will receive a low pension income.Companies that have a defined-contribution plan are likely to invest the pension funds into the companies' own stock.That way, employees have an incentive to be more productive because the value of their pension plan depends on their company's profitability.However, this pension fund becomes dangerous if this company bankrupts.Then the employees own worthless stock.One infamous case was the Enron collapse in 2001.Some employees were millionaires until their stock portfolios collapsed in value overnight.Second, the most common type of plan is the defined-benefit plan.An employer promises a worker a specific amount of benefits that are based on the employee's earnings and years of service to the company.If this pension fund is profitable, the company pays the promised benefits and retains the remaining funds that are not paid to the retired employees.If the pension fund is unprofitable, then the company pays the promised benefits out of its own pocket.
    • Federal and state governments regulate the pension funds.Regulations require the managers of the pension funds to disclose all investments.That way, employees know which securities the pension fund managers have invested in.Regulations help prevent fraud and mismanagement.Unfortunately, a pension fund will bankrupt, when the company where the employees work bankrupts.Consequently, Congress created the Pension Benefit Guaranty Corporation that insures pension fund benefits up to a limit if the company cannot meet its obligations.Some economists believe a pension fund disaster will occur for state and local government retirees after 2012.Many state and local governments offered generous defined-benefit plans to public employees, and they have not placed enough money aside to fund the pension plans.
    • A recent trend in pension funds allows employees to manage their own pension plans, which are the 401(k) plans.The 401(k) refers to a section of law in the Internal Revenue Service's regulations, and the benefit of this pension plan is the employee can take his pension plan with him when he switches employers.However, the 401(k) has one risk.Amount of money a person has accumulated at retirement depends upon how much money he invested in the plan and how well the investments have done.

  • Benefits of Inventory Management

  • Advantages and Disadvantages of VC Financing

    • While VC financing provides the benefit of significant resources, costs include loss of ownership and autonomy.
    • It is important to weigh the benefits of receiving abundant resources against the costs of losing autonomy and ownership.

  • Chapter Questions

    • Identify the benefits for a business to expand into a growing country like China.

  • Advantages of Leasing

    • For businesses, leasing property may have significant financial benefits, which are outlined below:

  • Conflicts Between Managers and Shareholders

    • While attempting to benefit shareholders, managers often encounter conflicts of interest.
    • For example, a manager might engage in self-dealing, entering into transactions that benefit themselves over shareholders.
    • Venturing onto fraud, they may even manipulate financial figures to optimize bonuses and stock-price-related benefits.