Finance Chapter 1 - Introduction To Corporate Finance

Front 1

Capital budgeting

Back 1

the process of planning and managing a firm’s long-term investments

Front 2

Capital structure (finance structure)

Back 2

the mixture of debt and equity maintained by a firm

Front 3

working captial

Back 3

a firm’s short-term assets and liabilities

Front 4

Sole proprietorship

Back 4

a business owned by a single individual (easiest to start & least regulated & most common)

Front 5

Partnership

Back 5

a business formed by two or more individuals or entities

Front 6

Corporation

Back 6

a business created as a distinct legal entity composed of one or more individuals or entities (a legal "person", separate and distinct from its owners. has many of the rights, duties, privileges of an actual person)

Front 7

Goal of financial management

Back 7

maximize the current value per share of existing stock (make money or add value for the owners)

Front 8

Agency problem

Back 8

the possibility of conflict of interest between the stockholders and management of a firm

Front 9

Stakeholder

Back 9

someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

Front 10

three main corporate finance questions

Back 10

1. What long-term investments should you take on?
2) Where will you get financing?
3) How will you manage day-to-day financial activities?

Front 11

financial manager

Back 11

person in charge of answering main finance questions

Front 12

controller's office

Back 12

handles cost and financial accounting, tax payments, management I.S.

Front 13

treasurer's office

Back 13

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

Front 14

general partnership

Back 14

all partners share in gains or losses and all have unlimited liability for all partnership debts

Front 15

limited partnership

Back 15

one or more general partners run the business and have unlimited liability, but there will be one or more limited partner who will not actively participate in the business (common in real estate ventures)

Front 16

double taxation

Back 16

corporate profits are taxed twice (corporation pays taxes and then shareholders pay taxes on dividends)

Front 17

limited liability company (LLC)

Back 17

hybrid of a partnership and a corporation (operate and be taxed like a partnership but retain limited liability for owners)