Chapter 1

Question 1

Sole Proprietorship

Answer 1

A business owned and run by one person. They are usually small with very few employees.

Question 2

Sole Proprietorship characteristics

Answer 2

They are straightforward to start up.
No separation btwn the firm and owner, the firm can only have one owner, no investors.
Owner has unlimited personal liability for the firm’s debts.
Life of a sole proprietorship lasts as long as the owner, hard to transfer to someone else.

Question 3

Partnership

Answer 3

A business owned and run by more than one owner.

Question 4

Partnership characteristics

Answer 4

ALL partners are liable for the firm’s debt.
The partnership ends in the event of the death or withdrawal of any single partner.
Partners can avoid liquidation if provisions are set in the partnership agreement (buyout as an example).

Question 5

Limited Partnership

Answer 5

A partnership with two kinds of owners, general partners and limited partners.
General partners are liable for the firms liabilities, whereas Limited partners are only liable for their investment

Question 6

Limited Liability Company (LLC)

Answer 6

A limited partnership with NO general partners, BUT the limited partners ARE allowed to run the business. LLC’s have a hard time getting loans

Question 7

Corporation

Answer 7

Essentially its own separate entity or artificial being. Solely responsible for its own assets/liabilities and has very similar rights of a standard human.

Question 8

Stock

Answer 8

the ownership of equity of a corporation divided into shares

Question 9

Equity

Answer 9

Collection of all the outstanding shares of a corporation

Question 10

Shareholder

Answer 10

An owner of a share of stock or equity in a corporation

Question 11

Dividend Payments

Answer 11

Payments made at the discretion of the corporation to its equity holders

Question 12

S corporations

Answer 12

Those corporations that elect subchapter S tax treatment and are exempted by the IRS’s tax code from double taxation

Question 13

C corporations

Answer 13

Subject to double taxation

Question 14

Roles of the Financial Manager

Answer 14

1. Make investment decisions
2. Make financing decisions
3. Manage short-term cash needs

Question 15

Goal of the Financial Manager

Answer 15

to maximize the wealth of the owners, the stockholders

Question 16

Board of directors

Answer 16

a group of people who have the ultimate decision-making authority in the corporation

Question 17

CEO

Answer 17

charged with running the corporation by instituting the rules and policies set by the board of directors

Question 18

agency problem

Answer 18

when managers, despite being hired as the agents of shareholders, put their own self interest ahead of the interests of those shareholders

Question 19

Hostile takeover

Answer 19

an individual or organization (sometimes called a corporate raider) can purchase a large fraction of the company’s stock and in doing so get enough votes to replace the board of directors and CEO

Question 20

Primary market

Answer 20

refers to a corporation issuing new shares of stock and selling them to investors

Question 21

Secondary market

Answer 21

the trade of stocks without direct involvement of the corporation

Question 22

Listing Standards

Answer 22

outlines of the requirements a company must meet to be traded on the exchange

Question 23

Financial Institutions

Answer 23

entities that provide financial services, such as taking deposits, managing investments, brokering financial transactions, or making loans

Question 24

Financial Cycles

Answer 24

1) People save and invest their money
2) That money, through loans and stocks, flows to companies who use it to fund growth through new products, generating profits and wages
3) the money then flows back to the savers and investors