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Related Flashcards
Cards In This Set
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What are the advantages and disadvantages of a sole propriatorship, or unincorporated business owned by one person?
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Advantages: Owner can be their own boss, taxes only once as personal income and easy of formation
Disadvantages: unlimited liability, difficult to raise additional capital and transfer or ownership requires sale of entire business.
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What are the advantages and disadvantages of or partnership, or unincorporated business owned by more than one individual?
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Advantages: profits taxes only once, easy to establish, skill sets of partners utilized, partner liable to interest in ownership only
Disadvantages: liability is joint, partners personal assets can be seized, financial resources are limited
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What are the advantages and disadvantages of a corporation, a legal entity that is seperate from its owners created under state law?
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Advantages: Legally seperate entity/ limited liability, ownership can be transferred easily, unlimited life, capital easily available
Disadvantages: complex to establish, profits taxed twice (dividends)
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The following are the three goals of corporate finance; Maximizing Shareholder Wealth, Financial Transparency, and Ethical Conduct, describe the problems with having an over goal of Maximizing Profits.
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1. Focusing on short-term profit to detriment of long-term profitablity and growth
2. Not accounting for the level of risk associated with differnet profit scenerios
3. Electing accounting treatments making financial statements less useful to investor
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The following are the three goals of corporate finance; Maximizing Shareholder Wealth, Financial Transparency, and Ethical Conduct. What did Sarbanes-Oxley Act of 2002 major provisions and whom does it aim to protect?
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1. Creation of oversight board to regulate public accountants
2. Enhanced financial disclosure requirements
3. Increased penalities for corporate fraud
4. new requirements for certifying the accuracy of financial information
The stakeholders are anyone who has financial interest in corporation including sharholders and debtors.
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Briefty describe the key activities performed by a corporate finance department.
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1. Working Capital Management: focuses on corp.'s short-term cash needs and other resources
2. Capital Structure: focuses on corp.'s long-term goals and how resources are obtained
3. Capital Budgeting: planning and managing a corporation's long-term investments
4. Accounting: accumulating and reporting financial data for both internal and external use
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Describe the role of financial markets in corporate finance?
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Providers of capital are investors and the users which include corporations use financial markets to raise capital where the corporate finance department will determine how much capital will be financed by borrowing or issuing stock. There are a variety of financial vehicles that can be used to help meet the financial strategy.
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Contrast primary and secondary markets
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Primary markets are used to sell new securities with proceeds going straight to issue in leu of investment bank. Secondary markets provide mechanism for investors to buy and sell previously issued securities.
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