Exam 1 Flashcards
Board of Directors
Group of individuals elected by the stockholders to oversee management in a corporation
Agency Problem
Difficulties that arise when a principal hires an agent and cannot fully monitor the agent’s actions
Asset Classes
A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws
Sub-Areas of Finance
Investments, Financial Management, Financial Institutions and Markets, International Finance
Financial Management
Firm decisions in acquiring and utilizing cash, what type of capital should be raised, which projects to fund, and how to minimize taxation
Investments
What kinds of securities and which firms to buy
Financial Institutions and Markets
Facilitates flow of capital between investors and companies
Fiduciary
A legal duty between two parties where one party must act in the interest of the other party
Finance
The process of studying the value of things
Advantages of sole proprietorship
Easy to form, less regulation, single taxation
Disadvantages of sole proprietorship
Unlimited personal liability, low access to capital
Advantages of public corporation
Liability limited to investment, best access to capital, easy to transfer ownership
Disadvantages of a public corporation
More difficult to perform, double taxation, multiple owners in control
Economies of scale
Cost advantages when fixed costs are spread over a large number of units
Income statement
Over a period of time
