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BSNS114 > Topic 1-Financial Decision Making Objective > Flashcards

Topic 1-Financial Decision Making Objective Flashcards

1
Q

What is the main goal of a firm?

A

To maximise value of the business

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2
Q

Who should not be impacted in a firms financial objective?

A

Stakeholders

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3
Q

What is a business objective that is too narrow?

A

Focusing on increasing earnings is too narrow on accounting income and ignores importance of market value in managerial accounting

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4
Q

What is capital budgeting?

A

evaluation of the size, timing and risk of a future CF

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5
Q

What are the 3 types of financial decisions?

A
  1. Investment
  2. Financial
  3. Working capital management
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6
Q

Who is in charge of the investment decisions?

A

the financial manager who identifies investments worth more to the firm that the money needed to acquire
in charge of what long-term assets to purchase

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7
Q

What is the financial decisions?

A

determines the mix of non-current and current debts and equities a firm needs to finance long-term assets

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8
Q

What is the working capital management decision?

A

dealing with day to day activities to ensure sufficient resources to continue operations and avoid costs
deals with current assets and libailites

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9
Q

What are the 3 forms of a business?

A
  1. Sole proprietorship
  2. Partnership
  3. Corporation
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10
Q

Which form of a business have limited liability?

A

corporation and limited partnership

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11
Q

What form of business is easy to set up?

A

All three

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12
Q

What is 2 pros of a sole proprietorship ?

A

you can tax as personal income and don’t share profits

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13
Q

What is a sole proprietorship?

A

When the manager is the owner

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14
Q

What form of business is easy to switch owners?

A

corporation

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15
Q

What are 3 cons of a sole proprietorship?

A

not protected (unlimited libaility), limited access to capital and to switch owners you have to sell the whole business

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16
Q

What is a partnership?

A

Where 2 or more people are legally joined to manage a business and share profits

17
Q

What is the difference between a limited and general partnership?

A

general- all of the partners are owners and actively manage the company
limited- has both general partners and non who do not participate in managing business

18
Q

What are 2 advantages of a partnership?

A

increased accessibility to capital

can be taxed as personal income at first

19
Q

What are 2 disadvantages of a partnership?

A

difficult to switch owners

profit dissolves if one of the partners dies/sells

20
Q

What is a corporation?

A

there is a separate legal entity from the owner

21
Q

What is the process of incorporation?

A

legal process to form a corporate entity

22
Q

What are 2 pros of a corporation?

A

easy access to capital and limited liability

23
Q

What are 3 cons of a corporation?

A

costly to set up, corporate tax rate and agency problems

24
Q

What are ways to raise money for a firm?

A

debts (sells securities) and equity (receives money to invest in a new project)

25
Q

What type of problems causes conflicts between principal and agency?

A

Agency problem

26
Q

What are 3 things managers can do that aren’t great?

A
  1. make decisions that hurt the firm value
  2. lie to shareholders
  3. waste firm resources to benefit themselves
27
Q

Managers get control over ___ but ______

A

profit making process

no share in profits

28
Q

What would not align with management priorities with shareholders interests?

A

managers choosing salary

29
Q

What is the financial markets? (4 pts)

A
  • raise new funds (specifically corporates raise capital funding for investments)
  • offer liquidity
  • facilitate capital raising in the primary market
  • create an investment environment for investors
30
Q

The debt market is the __ market

A

primary

31
Q

Who facilitates the transactions of the primary debt market?

A

investment bank

32
Q

What is the action that happens in the primary market?

A

securities (shares/bonds) initially sold to investors for money

33
Q

the secondary market is the __ market

A

stock

34
Q

which market has more activity?

A

secondary

35
Q

Who facilitates secondary market transactions?

A

brokers/dealers

36
Q

The ____ is set at the secondary market and ___ is determined

A

share price

value of firm

37
Q

What action happens in the secondary market?

A

Investors buy and sell securities after IPO

38
Q

How does the secondary market assist companies?

A

by helping them obtain large amounts of capital to grow their firm

BSNS114 (13 decks)

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