Chapter 1 Flashcards
Financial Management Decision Process
- Capital budgeting
- Capital structure
- Working capital management
What is Capital budgeting?
planning and managing LT investments
Capital structure
How to pay for assets issue more equity
Working capital Management
how do we manage the day to day finances
Advantages for sole proprietorship
- easy to start
- least regulated
- single powers
- no double tax
disadvantages of sole proprietorship
- limited life
- hard to raise funds
- unlimited liability
- difficult to transfer ownership
disadvantage for corporation
- separation of ownership
- double tax
Advantages of corporation
- limited liability
- unlimited life
- capital is easy
- transfer ownership easy
What is agency’s problem?
conflict between principal (owners) and agent (management)
Primary vs Secondary Market
Primary: corporation and investors
Secondary: among investors
Dealer vs Markets
dealer: buy/sell at own risk
Markets: Match –
Auction vs. dealer markets
auction markets: exchange physical location
dealer market: buy/sell done by dealer
What is SOX
Sarbanes- Oxley Act;
officers must sign and review the annual report
attest no false info, material omissions, fairly represent company financial results
Partnership advantages
- 2+ owners
- increase capital
- easy to start
- income is taxed as personal
Disadvantage of partnership
- unlimited liability ( general and limited)
- partnership dissolves when die/sell
- difficult to transfer ownership
