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uni > BSNS114: Financial Decision Making > Flashcards

BSNS114: Financial Decision Making Flashcards

1
Q

What is the main objective in financial decision making?

A

To maximise the current value of corporate company’s share value

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2
Q

What is the financial managers three basic decisions?

A

Investment, financing and working capital management decisions

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3
Q

What are investment decisions asking?

A

Which productive assets company should buy

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4
Q

What is the financial decision asking?

A

How company should finance productive assets purchase

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5
Q

What is the working capital management decision asking?

A

How company should manage day-to-day financial actitvies

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6
Q

What can the climate change risks be classed into?

A

Physical, Transition and liability risks

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7
Q

What are the different business forms (3)

A

Sole proprietorship, partnership and corporation

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8
Q

What is sole proprietorship?

A

A type of business unit where one person is responsible for providing capital and managing the business

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9
Q

What are the features of sole proprietorship?

A
  • business owned by a single person
  • no separation of ownership and management
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10
Q

What are the advantages of sole proprietorship? (4)

A
  • simple and easy to form
  • the least expensive and regulated
  • no sharing of profit and loss
  • taxed as personal income (once)
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11
Q

What are the disadvantages of sole proprietorship? (3)p

A
  • limited access to capital
  • costly to transfer ownership
  • unlimited liability
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12
Q

What is partnership business form?

A

A business unit in which two or more owners have joined together legally to manage a business and share its profits

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13
Q

What is

A
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14
Q

What are the two types of partnership?

A

General and limited

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15
Q

What is a general partnership?

A

All patterns are owners and active in managing business

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16
Q

What is a limited partnership?

A

Both general partners (owners as well as being managers) and limited partners (owners but not managers)

17
Q

What are the advantages of partnership? (4)

A
  • Two or more owners
  • More capital available
  • Relatively easy to start
  • Income taxed once as personal income
18
Q

What are the disadvantages of partnership? (3)

A
  • Unlimited liability
  • Partnership dissolves when one partner dies or wishes to sell
  • Difficult to transfer ownership
19
Q

What is a corporation?

A

The legal process used to form a corporate entity (company)

20
Q

What are the advantages of a corporation? (3)

A
  • Seperate from its owners legal entity
  • easy transfer of ownership
  • limited liability
21
Q

What are there disadvantages of a corporation?

A
  • Agency cost
  • Corporate tax rate
    costly to establish and register
22
Q

What is the agency cost?

A

The cost incurred because of conflicts of interest between a principal and agent

23
Q

What is the agency cost?

A

Conflicts of interest between a principal and agent to the firm which may diminish firm value

24
Q

What are some ways to reduce agency cost? (2)

A

Monitoring, linking employee compensation to company performance

25
Q

What are financial institutions (intermediaries) ?

A

An institution whose business is to bring together savers with money to invest or lend with other firms that need money

26
Q

What is a primary market transaction?

A

The firm issues new securities and sells them to investors (IPO)

27
Q

What is an IPO?

A

Initial public offering

28
Q

What is a secondary market transaction?

A

The securities continue to trade between investors without involvement of the firm

29
Q

What is unlimited liability?

A

Business owners who are legally liable for any debt their business might accrue.

30
Q

What is limited liability?

A

A corporate loss will not exceed the amount invested. In other words, investors’ and owners’ private assets are not at risk if the company fails.

31
Q

What is debt?

A
  • Contractual obligation
  • Usually fixed term
32
Q

What is equity?

A
  • Keeps the earnings
  • Perpetual (infinite
33
Q

What is an asset?

A

What a firm owns

34
Q

What is a liability?

A

What a firm owes

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