Chapter 6
Only______percent of all firms are corporations, but corporations account for the majority of revenue and profits earned by firms.
20
Percent of total profits of all corporations in the United States
85
Indirect Finance
A flow of funds from savers to borrowers through financial intermediaries such as banks.
Direct finance
A flow of funds from savers to firms through financial markets, such as the New York Stock Exchange. OK
Stockholders' Equity
Assets minus Liabilities
Subtracting the value of a firm's liabilities from the value of its assets leaves its ______________.
Net worth
____________ is often listed as stockholders' equity on a balance sheet.
Net worth
The _________________________ of any activity is the highest valued alternative that must be given up to engage in that activity.
Opportunity cost
three-quarters of all firms are...
Sole proprietorships
When a firm spends money
an explicit cost results
By taking into account all costs, ____________________ provides a better indication than accounting profit of how successful a firm is.
economic profit
Economic profit
equal to a firm's revenues minus all of its costs, implicit and explicit.
Accounting profit
excludes some implicit costs so it is larger than economic profit.
If a firm incurs an opportunity cost but does not spend money....
implicit costs result.
A higher bond price indicates a__________ of new external funds, while a lower bond price indicates a_____________ of new external funds.
lower cost; higher cost
Difference between revenue and total cost?
profit
Intermediaries...
raise funds from savers to lend to firms (and other borrowers).
