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