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25 Cards in this Set
- Front
- Back
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Bernie Madoff
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Ponzi Scheme
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Capital budgeting or capital expenditure (CAPEX) decision
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Decision to invest in tangible or intangible assets.
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Tangible assets
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assets that you can touch or kick (Equipment, Plant)
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Intangible assets
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research & development, advertising, and the design of computer software. (Patents, trademarks)
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Financial decision
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The form and amount of financing of a firm’s investments.
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Two principal financial decisions
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-investment decision (capital budgeting)
1. decide which real assets to invest in -financing decision 1. decide how to raise the funds necessary to pay for those investments |
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Real assets
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Assets used to produce goods and services. (Intangible or tangible)
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Financial assets
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Financial claims to the income generated by the firm’s real assets. (stocks or bonds)
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Types of Organizations
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Government
Not-for-profit Proprietorships and partnerships Corporations Hybrid forms (Limited liability partnerships and small corporations) |
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Types of Business Organizations
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Sole Proprietorships
Partnerships Corporations Limited Liability Partnerships |
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Types of Corporations
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Public Companies
Private Companies Limited Liability Corporations (LLC) |
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Corporation
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Shareholders own business
Managers and owners separate Owner's liability LIMITED Owner and business taxed separately (double taxation) Personal tax on dividends |
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Sole Proprietorship
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Manager owns business
Managers and owners are NOT separate Owner's liability is unlimited Owner and business NOT taxed separately Personal tax on profits |
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Partnership
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Partners own the business
Managers and owners are NOT separate Owner's liability is unlimited Owner and business NOT taxed separately Personal tax on profits |
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Financial Managers
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Chief Financial Officer (CFO)
Treasurer Controller |
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Chief Financial Officer
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Finance area
Financial policy Corporate planning |
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Treasurer
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Financial Specialist
Cash management Raising capital & Bank relations |
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Controller
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Accounting
Financial statements & Taxes |
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Goals of the Firm
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Growth
Size Profits Social good VALUE MAXIMIZATION |
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Agency Problems
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Conflict of interest between management and owners
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Agency Problems Solutions
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1-Compensation plans
2-Board of Directors 3-Takeovers 4-Specialist Monitoring 5-Auditors 6-Managerial Reputation |
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Financial Management
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Investment decisions or capital budgeting
-buy assets that are worth more to the firm than others Financing decisions -minimize cost of funds -optimal debt or dividend policy |
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Financing Decision
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Raising money that the firm needs for its investments and operations
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Capital structure
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The mix or long term debt and equity financing
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Flow of Cash between investors and the firm's operations
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1. Cash is raised from investors
2. Cash is used to pay for the real assets 3. The assets generate cash inflows 4a. Cash is reinvested 4b. Cash is returned to investors who furnished the money in the 1st place |
