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buad306 mid-term notes

buad306 mid-term notes - BUAD 306 Mid-term Notes Chapter 1...

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BUAD 306 Mid-term Notes Chapter 1 Business finance is another name for corporate finance. Treasurer- oversees cash/credit management, capital expenditure, and financial planning. Controller- oversees taxes, cost/financial accounting and data processing. Three major forms of business in the US: Sole Proprietorship, General/Limited Partnership, and Corporation. Sole Proprietorship: easy to start, least regulation, single owner keeps profit, taxed once. Limited to life of owner, unlimited liability, difficult to sell ownership interest. Partnership: two or more owners, more available capital, easy to start, taxed once. Unlimited liability, partnership dissolves when one dies, difficult to transfer ownership. Corporation: Limited liability, unlimited life, separation of ownership and management, easy to raise capital and ownership easily transferred. Separation of ownership and management, double taxation. Agency Problem: Conflict of interest between principal and agent. When the agent doesn’t act in the best interest of the principal. Direct agency cost: purchase of something for management that cannot be justified from a risk-return standpoint. Indirect agency cost: management’s tendency to forgo risky or expensive projects that could be justified from a risk-return standpoint. Goals of management: Maximize shareholder wealth subject to constraints. Chapter 2 Book Value: The value at which is listed on the balance sheet for assets, liabilities and equity. Market Value: Price at which the assets, liabilities, and equities can actually be bought or sold. Market Value would be more important for decision making because they are more reflective of the cash flows that would occur today. Liquidity: Ability to convert to cash quickly. Matching Principle: record revenue when it is paid and match it with the expense. Marginal tax rates: the percentage paid on the next dollar earned. Average tax rates: the tax bill/ taxable income. Marginal tax rate is what should be used in decision making. Cash flows is one of the most important piece of information a financial manager can obtain from a financial statement. Chapter 3 Sources: Cash inflow- occurs when something is sold. Decrease in asset and increase in liability or equity. Uses: Cash outflow- occurs when something is bought.
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Increase in asset and decrease in liability or equity. Statement of cash flow summarizes the sources and uses of cash. Operating Activity: includes net income and changes in most current accounts. Investment Activity: Includes changes in fixed assets. Financing Activity: includes changes in liabilities and equities along with dividends. Standardizing BS: compute all accounts as a percent of total assets.
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