Midterm1 noter - Capital Budgeting The process of planning...

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Capital Budgeting: The process of planning and managing a firms long term investments (value of cash flow generated by asset > price of asset) Capital Structure: The mixture of debt and equity maintained by a firm (how many % goes to creditors and how much to shareholders) Working Capital: A firm’s shortterm assets and liabilities Business Type # owners Liability for firm dept Owners manage firm Ownership change – dissolve firm Taxation Sole proprietorship 1 yes yes yes personal Partnership >1 yes yes yes personal Limited partnership >1 Genearal partner – yes Limited partners: limited liability general partner no personal LLC >1 no yes no personal Subchapter S > no yes/no no personal C Coorporation >> no no no double Goal of financial management: Maximize value per share of existing stock SARBOX: Act that makes the company management responsible for the accuracy of the financial statement The Agency Problem: the possibility of conflict o finterests between stockholders and management – either direct or indirect Stakeholder: Someother than stockholder or creditor who potentially has a claim on the cash flow of the firm Primary Market: The coorporation is the seller and the transaction raises money for the corporation Secondary Market: Involves one owner or creditor selling to another Balance Sheet: Snapshot of a firms assets and liabilities at a given point in time (accounting value) Assets: What a firm owns in a) Current assets: Lifetime < 1 year b) Fixed assets: Lifetime > 1 year, which can be divided into tangible and intangible Liabilities: What a firm owes, divided into current and fixed Owners equity: Def: Net Working Capital (NWC): Def:
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This note was uploaded on 03/29/2008 for the course FIN 300 taught by Professor Mucklow during the Spring '08 term at University of Wisconsin.

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Midterm1 noter - Capital Budgeting The process of planning...

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