Chapter 1

Question 1

Which is the financial goal of corporations?

Answer 1

to maximize the corporate value by:
a) investing: find which projects worth to invest in.
b) financing: how should these projects be financed.

Question 2

What is the minimum rate of return and how else it is called?

Answer 2

is the minimum profit an investor expects to make from an investment, taking into account the risks of the investment and the opportunity cost of undertaking it instead of other investments.

It is also called a hurdle rate or cost of capital.

Question 3

Explain the difference between capital budgeting and financing desicions.

Answer 3

The budgeting decision defines the amount of money and what it will do. The financing decision defines where the money comes from.
Capital budgeting means investment in real assets.
Financing means raising the cash for this investment.

Question 4

what is limited liability company in business?

Answer 4

Limited liability (LLCs) means that the assets and debts of the business remain separate from the personal assets and debts of the company’s owners.
Unlimited liability: investors are responsible for all
the firm’s debts. A sole proprietor has unlimited liability. Investors in corporations have limited liability.
They can lose their investment, but no more.

Question 5

what is opportunity cost of capital?

Answer 5

The opportunity cost of capital is the rate of return that you could earn by investing your money in the best alternative project with similar risk and duration. It reflects the trade-off between the present and the future value of your money.

Question 6

What is opportunity cost?

Answer 6

The loss of the alternative, when we make a decison.