Notes - Cheat Sheet Finance Midterm 1 Treasurer oversees...

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Cheat Sheet Finance Midterm 1 Treasurer – oversees cash management, credit management, capital expenditures and financial planning Controller – oversees taxes, cost accounting, financial accounting and data processing Capital budgeting What long-term investments or projects should the business take on? Capital structure How should we pay for our assets? Should we use debt or equity? Working capital management How do we manage the day-to-day finances of the firm? Sole Proprietorship Advantages Easiest to start Least regulated Single owner keeps all the profits Taxed once as personal income Disadvantages Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest Partnership Advantages Two or more owners More capital available Relatively easy to start Income taxed once as personal income Disadvantages Unlimited liability General partnership Limited partnership Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership Corporation Advantages Limited liability Unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital Disadvantages Separation of ownership and management
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Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) Agency relationship Principal hires an agent to represent their interest Stockholders (principals) hire managers (agents) to run the company Agency problem Conflict of interest between principal and agent Management goals and agency costs (direct and indirect) Managerial compensation Incentives can be used to align management and stockholder interests The incentives need to be structured carefully to make sure that they achieve their goal Corporate control The threat of a takeover may result in better management Other stakeholders Chapter 2 Net Working Capital Current Assets – Current Liabilities Marginal vs. average tax rates Marginal = the percentage paid on the next dollar earned Average = the tax expense / taxable income Depreciation Expense = diff. between 2 acc. Depreciation in B/S
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Chapter 3 Sources Cash inflow – occurs when we “sell” something Decrease in asset account (Sample B/S) Increase in liability or equity account Everything except accounts payable is a source Uses Cash outflow – occurs when we “buy” something Increase in asset account Decrease in liability or equity account Accounts payable is the only use Operating Activity – includes net income and changes in most current accounts Investment Activity – includes changes in fixed assets Financing Activity – includes changes in notes payable, long-term debt
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This note was uploaded on 03/20/2008 for the course BUAD 306 taught by Professor Selvili during the Spring '07 term at USC.

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Notes - Cheat Sheet Finance Midterm 1 Treasurer oversees...

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