Chapter 6 - Corporate Finance-2.pdf

Chapter 6 - Corporate Finance-2.pdf - 1 Forms of business...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
11/27/2017 1 Chapter 6: Introduction to Corporate Finance 1. Forms of business organization Three major forms in the U.S 1. Sole proprietorship 2. Partnership 3. Corporation Sole proprietorship Advantages Disadvantages Easiest to start Least regulated Single owner keeps all the profits Taxes once as personal income Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest Partnership Advantages Disadvantages Two or more owners More capital available Relatively easy to start Income taxes once as personal income Unlimited liability Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
11/27/2017 2 Corporation Advantages Disadvantages Limited liability Unlimited life Separation of ownership and management Transfer ownership is easy Easier to raise capital Separation of ownership and management Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) 2. Review of Financial Statements 1.1. Function of Financial Statements 1.2. The Balance Sheet 1.3. The Income Statement 1.4. The Cash-Flow Statement 2.1. Function of Financial Statements Financial Statements provide: - Information to the owners & creditors of a firm about the current status and past performance - A convenient way for owners & creditors to set performance targets & to impose restrictions of the managers of the firm - A convenient templates for financial planning 2.2. Balance Sheet Summarizes a firms assets, liabilities, and owner’s equity at a moment in time Amounts measured at historical values and historical exchange rates ASSETS = LIABILITIES + EQUITY
Image of page 2
11/27/2017 3 G P C B a la n c e S h e e t a t D e c 3 1 , 2 xx 1 2 x x 0 2 x x1 C h a n g e A ss e ts C a sh & m k t'b le se c s 1 0 0 .0 1 2 0 .0 2 0 .0 R e c e iv a b les 5 0 .0 6 0 .0 1 0 .0 In v e n to rie s 1 5 0 .0 1 8 0 .0 3 0 .0 *C u rre n t a ss e ts 3 0 0 .0 3 6 0 .0 6 0 .0 P p & e 4 0 0 .0 4 9 0 .0 9 0 .0 A c c d e pre cia tio n (1 0 0 .0 ) (13 0 .0) (3 0.0 ) *N e t p p & e 3 0 0 .0 3 6 0 .0 6 0 .0 **T o ta l A s s e ts 6 0 0 .0 7 2 0 .0 1 2 0.0 L ia b ilitie s & E q u ity A c co u n ts p a y a b le 6 0 .0 7 2 .0 1 2 .0 S h o rt-te rm d e b t 9 0 .0 1 8 4 .6 9 4 .6 *C u rre n t lia b ilitie s 1 5 0 .0 2 5 6 .6 1 0 6.6 L o n g -te rm d e b t 1 5 0 .0 1 5 0 .0 - **T o ta l liab ilitie s 3 0 0 .0 4 0 6 .6 1 0 6.6 P a id -in c a p ita l 2 0 0 .0 2 0 0 .0 - R e ta in e d e arn in g s 1 0 0 .0 1 1 3 .4 1 3 .4 *S h a re h o ld e rs e q u 3 0 0 .0 3 1 3 .4 1 3 .4 L ia b + S h a re h o ld e r 6 0 0 .0 7 2 0 .0 1 2 0.0 Acme Corporation 2011 2012 Change Assets: Cash $9,000,000 $10,000,000 1,000,000 Accounts receivable 700,000 1,000,000 300,000 Inventory 17,300,000 10,000,000 -7,300,000 Marketable Securities 9,000,000 8,000,000 -1,000,000 Prepaid Expenses 1,000,000 1,000,000 0 Total current assets 37,000,000 30,000,000 -7,000,000 Fixed Assets, Gross 14,000,000 28,000,000 14,000,000 less Accumulated Dep (6,000,000) (8,000,000) -2,000,000 Fixed Assets, Net 8,000,000 20,000,000 12,000,000 Total assets $45,000,000 $50,000,000 5,000,000 December 31 Acme Corporation 2011 2012 Change Liabilities & Equity: Accounts Payable $7,000,000 $4,000,000 -3,000,000 Notes payable 4,000,000 3,000,000 -1,000,000 Accrued Expenses 3,000,000 2,000,000 -1,000,000 Total current liabilities 14,000,000 9,000,000 -5,000,000 Long-term debt 10,784,000
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern