Ch 1 Flashcards
Capital structure
Mixture of debt and equity maintained by firm
Financial structure
Capital budgeting
Process of planning and managing a firm’s
Longterm investments
2 Concerns of financial manager?
How much should the firm borrow
What are the least expenses sources of funds for the firm
Working capital
Firm’s short term assets and liabilities
Sole proprietorship
Business owned by a single individual
Partnership
Business formed by 2 or more individuals or entities
3 disadvantages of sole proprietorships a partnerships?
1 unlimited liability of business debts
2 limited life of business
3 difficulty transferring ownership
Corporation
Business created as distinct legal entity owned
By one or more individuals or entities
Goal of Limited liability corporation (LLC)?
Goal of this entity is to be operated and taxed like
A partnership but retain limited liability for owners
Goal of financial management of a corporation?
Maximize the current value per share of existing stock
Goal of for profit business that isn’t publicly traded?
Maximize market value of existing owners equity
Agency problem
Possible conflict of interest between owners and
management of firm
Proxy fight
Investors act to replace existing management
Stakeholder
Someone other than a stockholder or creditor
Who potentially has claim on cash flows of the firm
Primary market transaction
Corporation is the seller and the transaction raises money
for the corporation
Public offering
Primary market transaction where securities are sold
to the general public
Private placement
Primary market transaction where there is a negotiated
Sale involving a specific buyer
Secondary market transaction, 2 types of secondary markets?
One owner or creditor sells to another
Auction markets, dealer markets
Dealer markets for stocks and Longterm debt?
Over the counter (OTC) markets, through electronic trading
Auction markets
Has a physical location (wall street)
Dealers play a limited role, just try’s to match
sellers with those that wish to buy
Where most equity shares are sold
