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31 Cards in this Set

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A collection of assets assembled for the purpose of producing goods and/or services
what is a firm?
he top financial manager within a firm is usually the
Chief Financial Officer (CFO)
oversees cash management, credit management, capital expenditures, and financial planning
treasurer
oversees taxes, cost accounting, financial accounting and data processing
controller
What long-term investments or projects should the business take on?
capital budgeting
–How should we pay for our assets?
–Should we use debt or equity?
Capital structure
How do we manage the day-to-day finances of the firm?
working capital management
what are some financial decisons
capital budgeting, capital structure, working capital management, and risk vs. return
what are the 3 major forms of an organization in the united states
corporation, sole proprietorship, partnership
one owner
sole properietorship
two or more owners
•General
•Limited
partnership
business created as a distinct legal entity composed of one or more entities
corporation
advantages of a sole proprietorship
–Easiest to start
–Least regulated
–Single owner keeps all the profits
–Taxed once as personal income
disadvantage of a sole proprietorship
–Limited to life of owner
–Equity capital limited to owner’s personal wealth
–Unlimited liability
–Difficult to sell ownership interest
–Two or more owners
–More capital available
–Relatively easy to start
–Income taxed once as personal income
advantages of a partnership
disadvantage of a partnership
Unlimited liability
•General partnership
•Limited partnership
–Partnership dissolves when one partner dies or wishes to sell
–Difficult to transfer ownership
advantages of a corporation
Limited liability
–Unlimited life
–Separation of ownership and management
–Transfer of ownership is easy
–Easier to raise capital
disadvantages of a corporation
Separation of ownership and management
–Double taxation (income taxed at the corporate rate and then dividends taxed at the personal rate)
what is the goal of financial management?
to maximize the value of stock and share owner wealth
–Principal hires an agent to represent his/her interests
–Stockholders (principals) hire managers (agents) to run the company
agency relationship
Conflict of interest between principal and agent
agency problem
Created in response to the scandals in the 90’s and early 2000’s
•One of the provisions of the law is that management assumes responsibility for the accuracy of the financial statements, and therefore held accountable for misstatements
sarbanes oxely 2002 (sarbox)
–Incentives can be used to align management and stockholder interests
–The incentives need to be structured carefully to make sure that they achieve their goal
managerial compensation
The threat of a takeover may result in better management
corporate control
To facilitate a flow of funds from “savers” to “users” in such a fashion as to bring about an efficient allocation of resources
primary function of financial markets
–IPO (Initial public offerings)
–SEO (Seasoned equity offerings)
–Investment bankers play a major role in primary markets (underwriters)
primary financial markets
Organized exchanges (NYSE) and over-the-counter markets
–Where investors buy and sell
–Provide liquidity for investors
secondary markets
provide investment advice and charge higher commissions
full service brokerage accounts
lower commission rates with less advice
discount brokers
: lower commission rates with little to no advice
online trading
what are the three types of brokerage accounts?
full service, discount brokers, and online trading