Definitions

Question 1

Capitol budgeting

Answer 1

Process of making and managing expenditures on long-lived assets

Question 2

Capital structure

Answer 2

The proportions of the firm’s financing from current and long-term debt and equity

Question 3

Net working capital

Answer 3

= Current assets - current liabilities

Question 4

Sole proprietorship

Answer 4

A business owned by one person:

• cheapest business to form no formal Charter is required in a few government regulations must be satisfied for most Industries
• pays no corporate income taxes all profits of the business are taxed as individual income
• the sole proprietorship has unlimited liability for business debts and obligations. No distinction is made between personal and business assets
• because the only money invested in The Firm is the Proprietors, the equity money that can be raised by the sole proprietor is limited to the Proprietors personal wealth.

Question 5

Partnership

Answer 5

Business formed by two or more people

Question 6

General partnership

Answer 6

All Partners agree to provide some fraction of the work and cash and to share the profits and losses. Each partner is liable for all the debts of the partnership. A partnership agreement specifies the nature of their agreement.

Question 7

Limited Partnerships

Answer 7

Permit the liability of some of the partners to be limited to the amount of cash each has contributed to the partnership. Limited Partnerships usually require that at least one partner be a general partner and the limited partners do not participate in managing the business.

Question 8

Corporation

Answer 8

Corporation is a distinct legal entity. Corporation can have a name enjoy many of the legal powers of a natural person. Corporations can enter contracts May Sue and be sued. For your sectional purposes the corporation is a citizen of its state of Incorporation.

Question 9

Agency relationship

Answer 9

The relationship between stockholders and management.

Question 10

Agency problem

Answer 10

Conflict of interest between the principal and the agent

Question 11

Stakeholders

Answer 11

Someone other than stockholder or creditor who potentially has a claim on the cash flows of the firm

Question 12

Assets

Answer 12

= liabilities + stockholders equity

Question 13

Balance sheet

Answer 13

An accountant snapshot of a firm’s accounting value on a particular date as though the firm stood momentarily still. The balance sheet only shows the book value of a firm.

Question 14

Liquidity

Answer 14

The ease and quickness with which assets can be converted to cash without significant loss in value

Question 15

Current assets

Answer 15

The most liquid and include cash and assets that will be turned into cash within a year from the date of the balance sheet

Question 16

Accounts receivable

Answer 16

Amounts not yet collected from customers for goods or services sold to them

Question 17

Inventory

Answer 17

Composed of raw materials to be used in production, work in progress, and finished goods

Question 18

Fixed assets

Answer 18

The least liquid kind of assets. Tangible fixed assets include property plant and equipment. Some fixed assets are intangible. Intangible assets have no physical existence but can be very valuable. Examples of intangible assets are the value of a trademark or the value of a patent.

Question 19

Liabilities

Answer 19

Obligations of a firm that require a payout of cash within a stipulated period.

Question 20

Carrying value

Answer 20

Book value

Question 21

Gaap

Answer 21

Generally accepted accounting principles

Question 22

Market value

Answer 22

Price at which willing buyers and sellers would trade the assets

Question 23

Income statement

Answer 23

Measures performance over specific period.

Revenue - expenses = income

Question 24

Non-cash items

Answer 24

Expenses against revenues but did not affect cash flows (depreciation)

Question 25

Average tax rate

Answer 25

=Taxes owed / total income

Question 26

Marginal tax rate

Answer 26

The tax you would pay if you earned one more dollar