unit 2 Module 2- finance in business

Question 1

sole proprietorship

Answer 1

owned by one entrepreneur.

Question 2

Advantages and disadvantages of sole proprietorship

Answer 2

advantages: the sole proprietorship structure does not require filing of articles of incorporation, regular meetings, or election of a board. A sole proprietor also files taxes as personal income.
Disadvantages: there is no separation between the entrepreneur and the business. This means the sole proprietor is personally liable for business losses. Also, if the proprietor dies, the business ceases to exist.

Question 3

partnership

Answer 3

run and owned by two or more entrepreneurs.

Question 4

Partnership advantages and disadvantages

Answer 4

Advantage:its ease, in terms of filing and tax treatment. A general partnership can be started with no special formalities. The partners are taxed individually on their respective shares of the partnership’s profits.
Disadvantage: owners ca be personally liable for business losses.

Question 5

Limited liability company

Answer 5

he owners are not personally liable for the company’s debts or liabilities.

Question 6

LLC- Advantages & disadvantages

Answer 6

advatanges: limited lability
Disadvantage: may have to be dissolved upon the death or bankruptcy of a member.

Question 7

Corporation

Answer 7

• advatanges: Protection of personal assets of stockholders, directors, and officers. ownership easily transferable.
• Disadvantage: harder to found and maintain, meetings with board of directors, annual reporting, annual financial statements,

Question 8

S corporations

Answer 8

elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes.
the income, deductions, and tax credits of an S corporation flow through to shareholders, Payments to S shareholders by the corporation are distributed tax-free to the extent that the distributed earnings were previously taxed.

Question 9

bond

Answer 9

a documentary obligation to pay a sum or to perform a contract; a debenture.

Question 10

Dividend

Answer 10

a pro rata payment of money by a company to its shareholders, usually made periodically (e.g., quarterly or annually).

Question 11

valuation

Answer 11

the process of estimating what something is worth.

- this is for shareholders, they want to know the companies value

Question 12

valuation process

Answer 12

Prospective investors conduct a “valuation process” by analyzing the company financial statements to help determine the companies valuation.

Question 13

agency costs

Answer 13

deviation from the principals interest by the agent

Question 14

shareholders

Answer 14

owners; shareholders have an incentive to take riskier projects than bondholders do and may prefer that the company pay more out in dividends.

Question 15

bondholders

Answer 15

creditors; are more interested in strategies that will increase the chances of getting their investment back.

Question 16

Goal of financial management for shareholder

Answer 16

A goal of financial management can be to maximize shareholder wealth by paying dividends and causing the market value to increase.

Question 17

fundamental analysis

Answer 17

an analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, etc.

Question 18

Market value

Answer 18

is the price at which an asset would trade in a competitive auction setting.
-Calculated by multiplying the number of shares outstanding by the price per share.

Question 19

stakeholder

Answer 19

a person or organization with a legitimate interest in a given situation, action or enterprise.