Introduction to Finance, Time Value of Money, Compounding and Discounting Flashcards
what are the two ways for a company to get funding
debt
equity
why might a company want to raise capital through equity
reach more people willing to lend globally
3 forms of business organisation
sole propiertorship
partnership
corporation
disadvantages of a sole proprietorship
unlimited liability limited life no separation of ownership and management transfer of ownership difficult raising capital difficult
advantages of a sole proprietorsip
no separation of ownership and management
taxation (profits only taxed once)
less regulation
advantages of a corporation
limited liability unlimited life separation of ownership and management transfer of ownership is easy easier to raise capital
disadvantages of corporation
double taxation (corporate tax and then personal tax on dividends too) legal and more requirements
explain how banks want it every which way
they wanted to pay as little tax and privatise their gains, socialising their losses
in the celtic tiger, Ireland was the __ of financial regulation
this meant that companies were locating here because of the low regulatory standards
wild west
example of the ethics of maximising financial value
nestle pushed formula milk in Africa but supply of water was poor and unsafe leading to infant mortalities
volkswagon cheated on diesel emission measures
how can corporate governance manage agency probelms
legal requirements = insider trading is illegal -
board of directors = must be independent expertise, elected by shareholders
solutions to agency problems
- corporate governance
- Internal controls and decision making process
- Compensation plans
- Activist shareholders
- Information
- Threat or takeover
what is an activist sharehoolder
with the diffusion of ownership, people may have little incentive to care about the dividends etc and fight for it but sometimes there is one very active investor
eg apple never paid dividends until Carl Icahn became an activist shareholder
if a share price falls low enough, company will become cheap enough t o buy
the first thing that will change is ——
bad management
3 tests for an independent board of directors
- majority of directors are outside directors,
- chairman independent of the company (CEO and chair should not be one and the same)
- are auditors composed entirely of outsiders
