FIN 300 Chapter 1
All of the following are external factors that influence the stock prices of the firm except
Capital Structure
Managerial actions to maximize stockholder weath
Capital structure decisions Capital budgeting decisions Dividend Policy decisions
Corporation Disadvantages
Cost of set-up and report filing Double taxation
Proprietorship Advantages
Easy to form Few Gov't. regulations No corporate income tax
Agency Relationship
Exists whenever a principal hires an agent to act on his or her behalf.
Professional Limited Liability Company (PLLC)
Lawyers, doctors, architects, engineers, accountants, and chiropractors.
Partnership
Like proprietorship, except 2+ owners Same advantages and limitations
Mechanisms to motivate the manager to act in the shareholders best interest
Managerial compensation Shareholder intervention Threat of takeover
Corporation Goals
Maximize stockholder wealth Managerial incentives Social responsibility
Which of the following should be the primary goal pursued by the financial manager of a firm?
Maximize the market value of the firm's stock.
The primary goal of a financial manager should be to _____.
Maximize the value of the firms stock.
Factors influenced by managers that affect stock price
Projected cash flows Timing of cash flow streams Risk of projected cash flows Use of debt Dividend policy
In the United States, the most common form of business is the _______, and the form of business that generates most of the sales and profits is the _______.
Proprietorship; Corporation
Corporation Advantages
Unlimited life Easy to transfer ownership Limited liability Easy to raise capital
Proprietorship Limitations
Unlimited personal liability Limited Life Difficult to transfer Difficult to raise capital
Everything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between the proprietorship and partnership business forms is that...
A partnership has more owners than a proprietorship
Business Ethics
A company's attitude and conduct toward its employees, customers, community, and stockholders
Agency Problem
Results when the agent makes decisions that are not in the best interest of principles
Corporate Governance
Set of rules that a firm follows when conducting business Generates higher returns to stockholders