Ch1 Corporations and Corporate Finance Flashcards
(10 cards)
What is a corporation?
A legal entity owned by shareholders with limited liability, capable of entering contracts, owning assets, and suing or being sued.
What are the main types of firms?
Sole proprietorship, partnership, limited liability company (LLC), and corporation.
What is the main advantage of corporations?
Limited liability for shareholders and ability to raise capital through equity.
What are the disadvantages of corporations?
Double taxation (corporate tax and dividend tax) and regulatory requirements.
What is the goal of financial management in a corporation?
Maximize the value of the firm for its shareholders.
What is the agency problem?
A conflict of interest between managers (agents) and shareholders (principals).
How can agency problems be mitigated?
Through performance-based compensation, board oversight, and market discipline.
What are financial managers responsible for?
Investment decisions, financing decisions, and managing day-to-day operations.
What are the three main tasks of a financial manager?
- Investment decisions; 2. Financing decisions; 3. Cash management.
What is the role of the board of directors?
Oversee management, ensure decisions align with shareholder interests, and appoint the CEO.
