Finance Test 1

Hostile_Takeover

In a _____________________, the managers of the acquired firm generally are fired, and those who stay on typically lose the power they had prior to the acquisition.

Accounting

In many firms (especially small ones) it is difficult to distinguish between the finance function and the __________ function.

What are some actions stockholders can take to ensure that management's interests and those of stockholders coincide?

Incentives for long term goals.

Members

LLC owners, called ___________, can be individuals or other businesses.

Why do U.S. corporations go international?

Labor costs

Limited Liability Company (LLC)

Offers the limited personal liability associated with a corporation; however, the company's income is taxed like that of a partnership.

Hostile takeover

The acquisition of a company over the opposition of its management.

Stockholder Wealth Maximization

The appropriate goal for management decisions; considers the risk and timing associated with expected cash flows to maximize the price of the firm's common stock.

What is the difference between stock price maximization and profit maximization? Under what conditions might profit maximization not lead to stock price maximization?

Short term decisions

What does it mean to maximize the value of a corporation?

Stock price goes up.

Managerial compensation (Incentives)

A common method to motivate managers to operate in a manner consistent with stock price maximization is to tie managers' compensation to the company's performance.

Business ethics

A company's attitude and conduct toward its stakeholders (employee, customers, stockholders, and community). Ethical behavior requires fair and honest treatment of all parties.

S Corporation

A corporation with no more than 100 stockholders that elects to be taxed in the same was as proprietorships and partnerships, so that business income is only taxed once.

Corporate Charter

A document filed with the secretary of the state in which a business is incorporated that provides information about the company including its name, address, directors, and amount of capital stock.

S_Corporation

A domestic corporation that has no more than 100 stockholders and only one type of stock outstanding can elect to file taxes as an _________________.

Corporation

A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.

Limited Liability Partnership (LLP)

A partnership wherin at least one partner is designated as a general partner with unlimited personal financial liability, and the other partners are limited partners whose liability is limited to amounts they invest in the firm.

Bylaws

A set of rules drawn up by the founders of the corporation that indicates how the company is to be governed; includes procedures for electing directors, rights of stockholders, and how to change bylaws when necessary.

Firms stock price (value) is dependent on...

1) the cash flows the firm is expected to provide in the future 2) when those cash flows are expected to occur 3) the risk associated with those cash flows

Corporate Governance

Deals with the set of rules that a firm follows when conducting business; these rules identify who is accountable for major financial decisions.

Economics

Finance and ___________ are so similar that some universities offer courses related to these two subjects in the same functional area.

What is Finance

Finance is concerned with decisions about money. Financial Decisions deal with how money is raised and used by businesses, governments, and individuals.

What are general areas of Finance?

Financial markets and institutions Invesments Financial services Managerial (business) finance.

How is value measured?

Future

Shareholder intervention

Along with institutional stockholders as pension funds and mutual funds, individual stockholders often "flex their muscles" to ensure that firms pursue goals that are in the best interest of shareholders rather than of the managers.

Proprietorship

An unincorporated business owned by one individual

Partnership

An unincorporated business owned by two or more persons.

Industrial groups

Organizations of companies in different industries with common ownership interest, which include firms necessary to manufacture and sell products; network of manufacturers, suppliers, marketing organization, distributors, retailers, and creditors.

What are some factors that make financial decision making more complicated for firms that operate in foreign countries than for purely domestic firms?

Politics and Taxes

The four 'P's of Marketing

Product Price Place Promotion

Exchange rates

The prices at which the currency of one country can be converted into the currencies of other countries.

Value

The worth of the expected future cash flows restated in current dollars-that is, the present value of the future cash flows.

Stakeholders

Those who are associated with a business, including managers, employees, customers, suppliers, creditors, stockholders, and other parties with an interest in the firm's well-being.

Information systems

To make sound decisions, financial managers rely on accurate information that is available when needed.

Proxy Votes

Voting power that is assigned to another party, such as another stockholder or institution.

Management

When we think of ___________, we often think of personnel decisions and employee relations, strategic planning, and the general operations of the firm.

Marketing

_____________ determine the success of products that are manufactured and sold by companies.

Financial Manager

_____________ makes decisions about the expected cash flows of the firm, which include decisions about how much and what types of debt and equity should be used to finance the firm; what types of assets should be purchased to help generate expected cash flows; and what to do with net cash flows generated by the firm - reinvest them in the firm or pay dividends.

Managerial (business) finance

______________ deals with decisions that all firms make concerning their cash flows, including both inflows and outflows.

Investments

______________ focus on the decisions made by businesses and individuals as they choose securities for their investment portfolios.

Financial markets and institutions

______________ includes banks, insurance companies, savings and loans, and credit unions, are an integral part of the general financial services marketplace.

Financial Services

______________ refer to functions provided by organizations that deal with the management of money.

What are the major functions in the investments are?

a) determining the values, risks, and returns associated with such financial assets as stocks and bonds. b) determining the optimal mix of securities that should be held in a portfolio of investments