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13 Cards in this Set
- Front
- Back
What is finance?
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is the study of how people and business evaluate investments and raise capital to fund them
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What is the role of finance in business?
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1. LT investments should the firm undertake
2. Raise the money for investments 3. How to manage money from day to day |
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Primary focus of Finance 3310
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-From the CFO's standpoint
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What are the advantages of a corporation?
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1. Owners have limited liability
2. Ownership is easily transferred 3. Unlimited Life 4. Easier to raise capital |
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What are the disadvantages of a corporation?
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1. Double Taxation - personal tax and tax on profits
2. Separation of ownership and management (Owners are not managers) Agency Problem |
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What is the goal of any firm?
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goal is to maximize shareholder wealth
1. Maximize the value per share of common stock 2. Maximize common Equity |
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Real Values v. Stock Price
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- dont focus on real values because they are based in the future
-focus on stock prices |
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What are other goals of the firm?
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- maximize economic profits
- accounting profits |
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What are the five principles of finance?
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1. Cash is what matters
2. Money has a Time Value 3. Risk requires a Return 4. Markets are generally right 5. Conflicts of interest cause the agency problem |
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Money has time value
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money is worth more now than in the future
-lose value in the future |
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Risk requires a return
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have to take a risk if you want a reward
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Markets Prices are generally right
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market prices for stock
-indicator of what the expectations are |
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Conflicts of interest cause the agency problem
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align values of shareholders to the managers
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