BF Reading Notes

BF Reading Notes - Ch. 1 Strive to maximize shareholder...

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Ch. 1 Strive to maximize shareholder wealth through solid profitable growth and effective use of capital. A major advance was the decision-oriented process of allocating financial capital (money) for the purchase of real capital (long term P&E). Day to day decisions are made to affect the firm’s performance. Financial management is focused on risk-return management has focused on risk-return relationships and the maximization of return for a given level of risk. Capital structure theory is the study of the relative importance of debt and equity. Hedging reduces some of the risk caused by changing interest rates and foreign currency exchange rates. Increases of prices cause inflation, which has been a key variable in financial decisions. Disinflation, a slowing down of price increases. The effects of inflation and disinflation of financial forecasting, the required rates of return for capital budgeting decisions, and the cost of capital are quite significant to financial managers and have become more important in their decision making. BDC – business to consumer, better way to reach customers. B2B business to business model, better way to meet suppliers. Forms of Organization: - Sole proprietorship; represents single person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs. 1-10 employees usually make up a sole proprietorship. A drawback is the unlimited liability that comes to the owner. The owner can lose not only the capital that has been invested in the bus., but also personal assets. Profits or losses of the sole proprietorship are taxed as though they belong to the individual owner. - Partnership; is similar to a sole proprietorship except there are two or more owners. Multiple ownership makes is possible to raise more capital and to share ownership responsibilities. The agreement to form partnership is called, the articles of partnership, that specify ownership interest, methods for distributing profits and means for withdrawing from the partnership. For taxing purposes, partnership profits or losses are allocated directly to partners and there is no double taxation as there is none in the corporate form. Like sole proprietorship the partnership carries unlimited liability. To stop the share of unlimited liability if distribution is different creates a special form of partnership a limited partnership. One or more partners are designated general partners and have unlimited liability for the debts of the firm; other
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partners are designated limited partners and are liable only for their initial contribution. - Corporation; produces the most profits and revenues. Only 20% of U.S. business firms are corporations but over 85% of sales and 60% of profits can be attributed to them. The corporation is a legal entity unto itself. The corporation may sue of be sued,
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This note was uploaded on 04/29/2008 for the course FINA 10100 taught by Professor Markert during the Spring '08 term at Ithaca College.

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BF Reading Notes - Ch. 1 Strive to maximize shareholder...

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