FNAN 300 - Ch. 1

The federal government taxes what two things?

corporate earnings and shareholder dividends

advantages of what? -Limited liability -Unlimited life -Separation of ownership and management -Transfer of ownership is easy -Easier to raise capital

corporation

disadvantages of what? Double taxation (income taxed at the corporate rate and then dividends taxed at the personal rate)

corporation

"Increasing shareholder wealth" means increasing the ___________________.

current common stock value

The four basic areas of finance:

-International Finance -Financial Institutions -Investments -Corporate Finance

When a corporation is formed, it is granted which of the following rights? a. ability to issue stock b. legal powers to sue c. corporate life of up to 100 years d. provincial citizenship for jurisdictional purposes

-a -b

__________________ - oversees taxes, cost accounting, financial accounting and data processing

Controller

advantages of what? -Easiest to start -Least regulated -Single owner keeps all the profits -Taxed once as personal income

Sole proprietorship

disadvantages of what? -Limited to life of owner -Equity capital limited to owner's personal wealth -Unlimited liability -Difficult to sell ownership interest

Sole proprietorship

What term applies to the mixture of debt and equity maintained by a firm?

capital structure

What area of finance is concerned with financial asset allocation?

investments

A sole proprietorship is a business that ________________.

is owned by one person

In a shareholder-manager relationship, who is the agent?

managers

What is the main goal of financial management?

maximize the current value of the company's stock

What should be the goal of a corporation?

maximize the current value of the company's stock

How is ownership transferred in a corporation?

ownership is transferred by gifting or selling shares of stock

A ___________________ is similar to proprietorship, except that there are two or more owners.

partnership

advantages of what? -Two or more owners -More capital available -Relatively easy to start -Income taxed once as personal income

partnership

disadvantages of what? -Unlimited liability -General partnership -Limited partnership -Partnership dissolves when one partner dies or wishes to sell -Difficult to transfer ownership

partnership

What is an important mechanism used by unhappy stockholders to replace current management?

proxy fight

When one owner or creditor sells to another, the transaction takes place in the _______________ market.

secondary

When one owner or creditor sells to another, the transaction takes place in the ________________________ market.

secondary

A bad financial decision is defined as a decision that decreases _____________________ __________.

shareholder wealth

The owners of a corporation are called:

shareholders

A(n) ______________________ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.

stakeholder

A corporation receives cash from financial market by selling _________________ and ___________________.

stocks and bonds

The primary responsibility of financial managers is to increase the value of _______________________.

the existing shares of stock

________________ - oversees cash management, credit management, capital expenditures, and financial planning

treasurer

_______________ budgeting is the process of planning and managing a firm's long-term assets.

capital

What two positions generally report to the chief financial officer (CFO)?

Treasurer and Controller

The threat of _____________ motivates managers to make good decisions.

a hostile takeover

The costs incurred due to a conflict of interests between stockholders and management are called __________________ costs.

agency

The conflict of interest between an agent and a principal is called a(n):

agency problem

Which of the following are defining features of the primary market? a. proceeds from the sale of securities goes to the issuing firm b. it is the market where initial public offerings are made c. it only involves seasoned equity offerings d. it is the market where shareholders and bondholders buy and sell to each other

-a -b

Which of the following are reasons that the corporation is the most important form of business? a. corporations can sue and be sued b. corporations are separate legal entities c. corporations can vote in general elections d. corporations can enter contracts

-a -b -d

In an over-the-counter market, which of the following is true? a. only stocks are bought and sold b. most of the buying and selling done by the dealer c. participants are called dealers d. an OTC market is also called an auction market

-b -c

What 3 questions are the financial managers concerned with?

-capital structure -capital budgeting -working capital management

2 things included in a firm's capital structure:

-equity -long-term debt

Corporations in other countries are often called: (3)

-joint stock companies -limited liability companies -public limited companies

a treasurer's responsibilities typically include what 3 duties:

-making financial plans -managing capital expenditure decisions -handling cash flows

2 defining features of the primary market:

-market where initial public offerings are made -proceeds from the sale of securities goes to the issuing firm

Working capital includes what 3 things:

-short-term assets -cash -inventory

3 major forms of business in the US:

-sole proprietorship -partnership -corporation

The major forms of business organizations in the United States:

-sole proprietorship -partnership -corporation

Which of the following are considered non-owner stakeholders in a company? -suppliers -employees -government -stockholder

-suppliers -employees -government

3 important questions that are answered using finance:

-what long-term investments should the firm take on? (capital budgeting) -where will we get the long-term financing to pay for the investment? (capital structure) -how will we manage the everyday financial activities of the firm? (working capital management)