Chapter 1 Flashcards
(42 cards)
What are the three concepts discussed in corporate finance?
1) Long term investments
2) Acquiring financing to pay for investments or bringing on owners
3) Managing everyday financial activities
List the three types of questions a financial manager is concerned with.
1) Capital budgeting
2) Capital structure
3) Working capital management
Define capital budgeting.
The process of planning and managing a firm’s long-term investments.
A firm’s _____________ ____________ is the specific mixture of long-term debt and equity the firm uses to finance its operations.
capital structure
T or F: Working capital focuses on short-term assets and liabilities.
True
This is the simplest type of business to start and is owned by one person.
sole proprietorship
What is the downside to a sole proprietorship?
The owner has unlimited liability to business debts and debtors can go after the proprietor’s personal assets to absolve debts.
T or F: You can easily transfer ownership of a sole proprietorship.
False, it can be difficult since it requires the sale of the entire business.
How do partnerships and sole proprietorships differ?
Partnerships involve two or more owners and they all share in gains/losses and own liability for debt of the business.
This tool is used to determine how a partnership’s gains and losses are divided.
partnership agreement
Briefly describe the difference between a general and limited parternship.
In a general partnership, all parties participate in the business and liability is shared amongst the partners.
Limited means one or more general partners run the business while others do not participate.
T or F: A general partnership can be terminated when any partners wishes to sell out or dies.
True
T or F: If a limited partner becomes too involved in a business, they can be deemed a general partner.
True
A _______________ is a legal “person”, separate and distinct from its owners.
corporation
List some things a corporation can do.
- Borrow money
- Own property
- Sue or be sued
- Enter into contracts
- Enter into a general or limited partnership
- Own stock in another corp
What is required to form a corporation?
Articles of incorporation ( or a charter) and a set of bylaws.
List what is included in the articles of incorporation.
- Name of corp
- Intended life of corp
- Number of shares to be issued
Stockholders elect the __________ ___ ___________ who then select the managers in a corporation.
board of directors
What is the role of a manager within a corporation?
Run the corporation’s affairs in the stockholder’s interest.
T or F: Stockholders do not control the corporation.
False, they do because they elect the directors.
What is the role of a treasurer?
Oversee cash and credit management, capital expenditures, and financial planning.
What is the role of the controller?
Oversee taxes, cost and financial accounting, and data processing.
What is the goal of financial management?
Maximize the current market value of the company’s stock.
What was the intent behind the Sarbanes-Oxley Act of 2002?
To strengthen protection against accounting fraud and financial malpractice.
