Finance 450 - Wilkinson - Chapter 1

A partnership in which partners share in gains or losses, and carry unlimited liability for all partnership debts, is called a

General Partnership

The costs incurred due to a conflict of interest between stockholders and management are called

Agency costs

General characteristics of a partnership...

All the partners share in gains or losses of the partnership Each owner has unlimited liability for all firm debts

The process of planning and managing a firms long-term assets

Capital Budgeting

What three subjects is the financial manager concerned with?

Capital Budgeting Capital Structure Working Capital Management

Refers to the specific mixture of long-term debt and equity the firm uses to finance its operations

Capital Structure

When are corporate profits taxed?

Corporations pay taxes on corporate profits Individuals pay taxes on corporate dividends

Why don't large businesses organize as sole proprietorships or partnerships?

It can be difficult to raise cash for investment in these forms, and that limits the ability of the business to grow.

Capital Budgeting is concerned with making and managing expenditures on ____________________

Long-term assets

A corporations life is unlimited because what two things are separated?

Management and Ownership

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stocks

An important mechanism used by unhappy stockholders to replace current management

Proxy fight

A business that is owned by one person

Sole Proprietorship

______________ can be used to encourage managers to maximize the value of the stock

Stock options

A partnership must have at least _______ owners

Two

Ensuring that the firm has sufficient funds to continue operations on a day-to-day basis comes under the heading of _______________ management.

Working Capital

Does the federal government tax corporate earnings and shareholder dividends?

Yes

The Sarbanes-Oxley Act is intended to strengthen protection against

corporate accounting fraud and financial malpractice

In a for-profit business, owners equity is equivalent to:

the total value of stock in a corporation

In a limited partnership, a limited partner's liability for business debts is limited to...

their cash contribution to the partnership

The Sarbanes-Oxley Act requires corporate officers to:

Confirm the validity of the financial statements Be responsible for errors in the annual report

What are key questions for investments?

What determines the price of a financial asset? What are the risks and regards associated with investing? What is the best mixture of financial assets to hold?