Flashcards in this deck (40)

• What are the basic areas of finance?

  1. Investments
  2. Financial institutions
  3. International finance
  4. Corporate finance
  finance basics
• What is the focus of investments in finance?

  • Value of financial assets
  • Risk versus return
  • Asset allocation
  finance investments
• What is an example of a concept related to financial institutions?

  Companies that specialize in financial matters.
  finance institutions
• What are key elements of international finance?

  • Exchange rates and political risk
  • Customs of other countries
  • Speaking a foreign language
  finance international
• What is the purpose of corporate finance?

  To answer questions about: - Long-term investments (Capital budgeting) - Long-term financing (Capital structure) - Everyday financial activities (Working capital management)
  finance corporate
• What is capital budgeting in corporate finance?

  Determining what long-term investments the firm should take on.
  finance corporate budgeting
• What does capital structure refer to in corporate finance?

  Where the firm will get long-term financing to pay for investments.
  finance corporate structure
• What is working capital management in corporate finance?

  Managing the everyday financial activities of the firm.
  finance corporate management
• What is a sole proprietorship?

  A business owned by one person.
  business sole_proprietorship
• What is an advantage of a sole proprietorship?

  Easiest to start.
  business advantages
• What is a disadvantage of a sole proprietorship?

  Unlimited liability.
  business disadvantages
• How are profits taxed in a sole proprietorship?

  Taxed once as personal income.
  business taxation
• What limits the equity capital of a sole proprietorship?

  Owner's personal wealth.
  business capital
• What is a partnership?

  A business owned by two or more individuals.
  business partnership
• What is an advantage of a partnership?

  More capital available.
  business advantages
• What is a disadvantage of a partnership?

  Unlimited liability for general partners.
  business disadvantages
• How is income taxed in a partnership?

  Income taxed once as personal income.
  business taxation
• What happens to a partnership when one partner dies?

  Partnership dissolves.
  business partnership
• What is a corporation?

  A legal entity separate from its owners.
  business corporation
• What is a key feature of a corporation?

  Limited liability for its owners.
  business corporation
• What is a disadvantage of a corporation?

  More regulations than other business types.
  business disadvantages
• What is a general partnership?

  A partnership where all partners share responsibilities and liabilities.
  business partnership
• What is a limited partnership?

  A partnership with both general partners and limited partners.
  business partnership
• What is a business owned by two or more persons called?

  Partnership
  business partnerships
• What are the two classifications of partnerships?

  • General
  • Limited
  business partnerships
• What is a corporation?

  A legal 'person' distinct from owners and a resident of a state
  business corporation
• What is one advantage of a corporation?

  Limited liability
  business corporation advantages
• What is another advantage of a corporation?

  Unlimited life
  business corporation advantages
• What is an advantage related to ownership in a corporation?

  Transfer of ownership is easy
  business corporation advantages
• What is an advantage of raising funds for a corporation?

  Easier to raise capital
  business corporation advantages
• What is a disadvantage of a corporation related to management?

  Separation of ownership and management (agency problem)
  business corporation disadvantages
• What is a financial disadvantage of a corporation?

  Double taxation
  business corporation disadvantages
• What is the goal of financial management in a corporation?

  Maximize the market value of existing stock
  finance corporation goals
• What is the agency relationship in a corporation?

  Principal hires an agent to represent its interests
  business agency finance
• Who are the principals and agents in the agency relationship?

  Stockholders are principals and managers are agents
  business agency finance
• What is the agency problem?

  Conflict of interest between principal and agent
  business agency finance
• What is the purpose of managerial compensation?

  To align management and stockholder interests.
  finance management
• What is the primary market?

  A market where the corporation is the seller and raises money.
  finance markets
• What is the secondary market?

  A market where one owner or creditor sells to another.
  finance markets
• What do financial markets facilitate between firms and investors?

  Cash flows between the firm and the financial markets.
  finance markets