Test 1 Cheat Sheet - Chapter 1 Annuity-series of equal...

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Chapter 1 - Areas in Finance money and capital , , markets investments financial management Proprietorship - unincorporated business ; : owned by 1 individual Adv ease of , , formation subject to few regulations no ; : corporate income tax Dis unlimited , , personal liability limited life difficult to , raise capital primarily small business Partnership - Unincorporated business owned by 2 or more people : , Advantages established easily not subject ; : to income tax Dis Unlimited personal , , liability difficulty raising capital limited ; ( ); lives general partners day to day ( ) Limited partner just gives $ Corp .- , . legal entity created by a state sep / and distinct from its owners managers : , Adv unlimited life easy transfer of , ., ownership limited liab ease of raising ; : , - capital Dis double taxation cost of set up ( : and report filling double tax $taxed at corp level and again as income as ) dividends .- Goals of the Corp ; maximize owner s value . . max wealth by max share price accomplished by accepting all possible net value projects - Agency Relationships exist when principal . : hires an angent to act on their behalf Ex shareholders and manager or shareholder and creditor . - Shareholders vs Managers managers inclined to act for their own best interest ) ) 1 managerial compensation plans 2 direct ) intervention by shareholders 2 threat of ) firing 4 threat of takeover . - Shareholders vs Creditors shareholders could take actions to maximize stock price ( that are detrimental to creditors need to ). maintain a maximum amount of dbt In long run such actions will raise cost of ; debt and ultimately lower stock price debtholders have bond agreements to saveguard investments - Business Ethics companies more and more concerned with ethics measure by seeing , , if employees adhere to laws regulation . moral code Chapter 2 = ( + ) FV PV 1 i ^n ( ) discounted cash flow = /( + ) PV FVn 1 i ^n = / PV CF I - Compounding determining the FV of a cash flow or series of cash flows when : > compound interest is applied PV FV - Discounting finding PV - Annuity series of equal payments at fixed # intervals for a specified of periods - Ordinary annuity annuity whose payments occur at the end of each period - Annuity Due annuity whose payments . occur at the beg Of each period = ( + ) - + ( + ) - FVAn PMT 1 I ^n 1 PMT 1 I ^n 2 = [(( + ) )- )/ )] FVAn PMT 1 I ^n 1 I - = Perpetuity stream of payments at fixed intervals expected to continue forever = / PV of a perpetuity
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