Study Guide Test 1.docx - Study Guide Test#1 Chapter 1 1 Productive Assets Long-term asset Can be tangible or intangible assets Tangible Assets

Study Guide Test 1.docx - Study Guide Test#1 Chapter 1 1...

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Study Guide Test #1 Chapter 1: 1. Productive Assets: Long-term asset. Can be tangible or intangible assets. Tangible Assets: Equipment, machinery, manufacturing facility. Intangible Assets: Patents, trademarks, technical expertise, intellectual capital. 2. Three Fundamental Decision in Financial Management: Capital Budgeting Decisions: identify the productive assets the firm should buy. Financing Decisions: determine how the firm should finance or pay for assets. Working Capital Management Decisions: determine how day-to-day finance matters should be managed so that the firm can pay its bills, and how surplus cash should be invested. 3. Forms of Business Organization: Sole Proprietorship: owned by a single person who is financially responsible for the actions and obligations of the business. o Advantages Easiest to create and control Easiest to dissolve Right to all profits o Disadvantages Owner’s personal assets at risk due to unlimited liability for firm obligations Equity only from owner or business profit Business income taxes as personal income Difficult to transfer ownership Partnership: owned by more than one person; one or more of them is financially responsible for the actions and obligations of the business. o Advantages Limited protection of owner’s personal assets Owner’s limited liability for firm obligations More sources of equity More sources of expertise o Disadvantages Shared control Shared profit harder to dissolve Corporation: owned by more than one person; none of them are financially responsible for the actions and obligations of the business. The corporation is responsible for its obligations and actions. o Advantages Protects personal assets No shareholder liability for business Easiest to change ownership Greatest access to sources of funds o Disadvantages Most difficult and expensive to establish Dilutes individual control over the firm Overall higher taxes on income for shareholders
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LLP and LLC: Hybrid forms of business organization. Both combine some of the limited liability characteristics of a corporation with the tax advantage of a partnership. 4. C-Corporation, S-Corporation, B-Corporation: C-Corporation: is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners under subchapter C of the IRS code. S-Corporation: are ordinary business corporations that elect to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes. The term “S corporation” means a small business corporation which has made that election under the IRS code.
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  • Fall '08
  • Olander

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