John recently came into a sum of money from an inheritance and is contemplating purchasing a small manufacturing facility in his home town. Not knowing much about running a business, he decided to have lunch with some of the other businesspeople in town. John listened attentively to the discussion around the lunch table, which focused on operating assets and the importance of using them efficiently in order to maximize profits. As John reflected on the lunch meeting, he realized that he had some unanswered questions concerning operating assets.
John's questions are as follows:
1. What methods are used to allocate the cost of operating assets and how do I know which one to choose for a particular operating asset?
2. How do I determine if I am using my operating assets efficiently to generate a profit?
3. How do I evaluate and determine an appropriate balance between equity and debt financing as I acquire operating assets?