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26 Cards in this Set
- Front
- Back
capital bedgeting
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the process of planning and managing a firm's long term investments
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evaluating the what is the essence of capital budgeting
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size, timing, and risk of future cash flows
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capital structure
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the specific mixture of long-term debt and equity the firm uses to finance its operations
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working capital
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ferms short-term assets such as inventory, and short-term liabilities, such as money owed to suppliers
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3 areas of corporate financial management
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capital budgeting
capital structure working capital management |
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disadvantages of sole proprietorships and partnerships as a forms of business organizations are?
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1) unlimited liability for business debts on the owners
2) limited life of the business 3) difficulty of transferring ownership |
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articles of incorporation must contain
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corporation name, its intended life, business purpose, and the # of shares it can be issued.
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double taxating
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be taxed at the corporate level and also at the personal level when they are paid out
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3 forms of business organization
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sole proprietorship
partnership corporation |
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general partnership
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all the partners share in gaines or losses, ALL have unlimited liability for all debts
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limited partnership
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one or more general partners will rul the business and have unlimited liability, BUT one partner who will not actively participate in the bus.
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advantages and disadvantages of a partnership
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general partners have unlimited liability for debts AND the partnership terminates when he/she wants out or dies
ALL income is taxed as personal income to the partners AND the amt of equity that can be raised is limited to partners combined wealth Ownership is not easily transfered |
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why is the corpoate form superior for saising cash
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b/c the ease of transferring ownership, the limited liability for bus debts, and the unlimited life of the bus
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future value (FV)
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the amt of money an investment will grow to over some period of time at some given interest rate
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compounding
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process of leaving your money and any accumlated interest in an investment for more than one period, thereby reinvesting the interest
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discounted cash flow (DCF) valuation
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calculating the present value of a future cash flow to dtermin its worth
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sole proprietorship is very...
Advantages Disadvantages |
illiquid
Advan: Keep all profits Dis: Unlimited liability limited to life of the owner diff. to sell ownership equity capital limited to owners personal wealth |
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Partnership
Advantages Disadvantages |
Ad:
2 or more owners (more capital) Easy to start Income taxed once as personal inc. Dis: unlimited liability general partnership limited partnership dissolves when one partner dies diff. 2 transfer ownership |
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General partnership
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all the partners share in gaines or losses, and all have unlimited liability for ALL debts
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limited partnership
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one or more general partners will run the bus. and have unlimited liability, but there will be one or more limited partners who will not actively participate in the bus
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Dis. of sole proprietorships and partnerships
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1) unlimited liability for the bus debts on the part of the owners
2) limited life of the bus 3) difficulty of transferring ownership |
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corporation
Advantages Disadvantages |
Adv:
Limited liability (HUGE) Unlimited life (they can live forever) Seperation of ownership and mang. Transfer of ownership is easy Easy to raise capital (due to limited liability) Dis: Seperation of ownership and mang (there are alot of small owners and they do not know what is going on) Double taxation Inc regalatory environment Agency problems |
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What should be the goal of a corporation?
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Maximize the current value of the companys stock!!!!
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value of firm
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what somone would pay for a firm.
Someone would pay more for a firm that is run well, that make good decisions, good employees |
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things that make firms more valuable
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Long-term investments
Financing investments Run day to day operations |
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share price
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what someone is willing to pay today to have ownership in the company
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