Ch 1

Question 0

Capital structure

Answer 0

Mixture of debt and equity maintained by firm

Financial structure

Question 1

Capital budgeting

Answer 1

Process of planning and managing a firm’s

Longterm investments

Question 2

2 Concerns of financial manager?

Answer 2

How much should the firm borrow

What are the least expenses sources of funds for the firm

Question 3

Working capital

Answer 3

Firm’s short term assets and liabilities

Question 4

Sole proprietorship

Answer 4

Business owned by a single individual

Question 5

Partnership

Answer 5

Business formed by 2 or more individuals or entities

Question 6

3 disadvantages of sole proprietorships a partnerships?

Answer 6

1 unlimited liability of business debts

2 limited life of business

3 difficulty transferring ownership

Question 7

Corporation

Answer 7

Business created as distinct legal entity owned

By one or more individuals or entities

Question 8

Goal of Limited liability corporation (LLC)?

Answer 8

Goal of this entity is to be operated and taxed like

A partnership but retain limited liability for owners

Question 9

Goal of financial management of a corporation?

Answer 9

Maximize the current value per share of existing stock

Question 10

Goal of for profit business that isn’t publicly traded?

Answer 10

Maximize market value of existing owners equity

Question 11

Agency problem

Answer 11

Possible conflict of interest between owners and

management of firm

Question 12

Proxy fight

Answer 12

Investors act to replace existing management

Question 13

Stakeholder

Answer 13

Someone other than a stockholder or creditor

Who potentially has claim on cash flows of the firm

Question 14

Primary market transaction

Answer 14

Corporation is the seller and the transaction raises money

for the corporation

Question 15

Public offering

Answer 15

Primary market transaction where securities are sold

to the general public

Question 16

Private placement

Answer 16

Primary market transaction where there is a negotiated

Sale involving a specific buyer

Question 17

Secondary market transaction, 2 types of secondary markets?

Answer 17

One owner or creditor sells to another

Auction markets, dealer markets

Question 18

Dealer markets for stocks and Longterm debt?

Answer 18

Over the counter (OTC) markets, through electronic trading

Question 19

Auction markets

Answer 19

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