Chapter One Corporate Finance

Front 1

Section: 1.1
Capital Budgeting

Back 1

The process of planning and managing a firm's longterm investments

Front 2

Section: 1.1
Who is associated with the financial management functions?

Back 2

Usually the top officer
Such as: Vice President of Finance or some other Chief financial officer

Front 3

Section: 1.1
The Vice President of finance coordinates whose activities?

Back 3

Treasurer and Controller

Front 4

Section: 1.1
What does th controller's office handle?

Back 4

Cost
financial accointing
tax payment
management information systems

Front 5

Section: 1.1
What does the treasurer's office handle?

Back 5

managing the firm's cash and credit
its financial planning
its capital expenditures

Front 6

Section: 1.1
notes 1: Capital Budgeting

Back 6

In capital budgeting, the financial manager tries to identify investment opportnities that are worth more to the firm than they cost to acquire.

Front 7

Section: 1.1
notes 2: Capital Budgeting

Back 7

Loosely speaking, this means that the value of the cash flow generated by an asset exceeds the cost of that asset

Front 8

Section: 1.1
notes 3: Capital Budgeting

Back 8

The essence of capital budgeting is the size, timing and risk of future cash flows. These three of by far the most important things to consider

Front 9

Section: 1.1
Questions asked to Financial management decisions:

Back 9

1. The first question concerns the firm's long-term investments.
2. The second question for the financial manager concerns ways in which the firm obtains and manages the long-term financing it needs to support its long-term investments.
3. The third question concerns working capital management.

Front 10

Section: 1.1
Capital Structure:

Back 10

The mixture of debt and equity maintained by a firm

Front 11

Section: 1.1
notes 3:

Back 11

Choosing among lenders and among loan types is another job handled by the financial manager

Front 12

Section: 1.1
Working Capital:

Back 12

Refers to a firm's short-term assets, such as inventory, and its short-term liabilities, such as money owed to suppliers

Front 13

Section: 1.2
What are the three different legal forms of business organization?

Back 13

1. Sole proprietorship
2. Partnership
3. Corporation

Front 14

Section: 1.2
Sole Proprietorship:

Back 14

1. Is a buiness owned by one person. It s the least regulated form of organization.
2. The owner of a proprietorship keeps all the profits.
3. The owner has unlimited liability for business debts.
4. There is no distinction between personal and business income, so all business income is taxed as personal income.
5. The life of a proprietorship is limited to the owner's life span.
6. The amount of equity that can be raised is limited to the amount of the proprietor's personal wealth.

Front 15

Section: 1.2
Partnership:

Back 15

1. Similar to a proprietorship except that there are two or more owners (partners.)

Front 16

Section: 1.2
Types of Partnership:

Back 16

1. General partnership- all the partners share in gains of losses, and all have unlimited liability for all partnership debts, not just some particular share.
2. Limited partnership- one or more general partners will run the business and have unlimted liability, but there will be one or more limited partners who will not actively participate in the business
*A limited partner's liability for business debts is limited to the amount that partner contributes to the partnership.
The advantages and disadvantages of a partnership are basically the same as those of a proprietorship

Front 17

Section: 1.2
Notes:

Back 17

1. The advantage and disadvantages of a partnership are basically the same as those of a proprietorship.
2. Partnerships based on a relatvely informal agreement are easy and inexpensive to form.

Front 18

Section: 1.2
Notes:

Back 18

General partners have unlimited liability for partnership debts, and the partnership termintes when a general partner wishes to sell out or dies

Front 19

Section: 1.2
Note:

Back 19

All income is taxed as personal income to the partners and the amount of equity that can be raised is limited to the partners' combined wealth.

Front 20

Section: 1.2
Note:

Back 20

Ownership of a general partnership is not easily transferred because a transfer requires that a new partnership be formed.
* A limited partner's interest can be sold without dissolving the partnership, but finding a buyer may be difficult.

Front 21

Section: 1.2

Back 21

The primary disadvantages of sole proprietorships and partnerships as forms of business organization are:
1. unlimited liability for business debts on the part of the owners.
2. limited life of the business
3. difficulty of transfering ownership

Front 22

Section: 1.2
Corporation:

Back 22

1. A corporation is a legal "person," separate and distinct from its owners, and it has many of the rights, duties, and privileges of an actual person.
2. A business created as a distinct legal entity composed of one or more individuals or entities

Front 23

Section: 1.2
Notes:

Back 23

In a large corporation, the stockholders and the managers are usually separate groups. The stockholders elect the board of directors, who then elect the manager. * The stockholders control the corporation because they elect the directors.