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Test One - Ch.1:Sole proprietorship A-easy formation...

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Ch.1:Sole proprietorship: A-easy formation, subject to few regulations, limited life, and difficult to raise capital. Corporation: unlimited life, easy transfer of ownership, limited liability, ease of raising capital double taxation, cost of set-up report filing. Reasonable compensation packages - rewarded on stocks performance over the long run, not the stocks price on an option exercise date. This means that options (or directs stock awards) should be phased in over a number of years so managers will have an incentive to keep the stock price high over time. Direct intervention by shareholders , including firing managers who don’t perform well- institutional investors/managers, can have considerable influence over firms operations. threat of a takeover - if a firms stock is undervalued, then corporate raiders - (an individual who targets corporation for takeover beacuase it is undervalued) will see it to be a bargain and will attempt to capture the firm in a hostile takeover - (the acquisition of a company over the opposition of its management). If the raid is successful, the execs will prob be fired. Shareholders vs creditors: could max stock prices through mangers that are detrimental to creditors and in long run will raise cost of and debt and ultimately lower stock prices. Ch.5: Types of Markets: spot markets assets are bought or sold on-the-spot delivery, future markets buy or sell asset at some future date, money funds are borrowed or loaned for short periods, capital financial markets for stocks and for intermediate or long term debt, primary markets in which corporations raise capital by issuing new securities, secondary securities and other financial assets are traded among investors after they have been issued by corporations, private worked out between two parties and public standardized contracts are traded on organized exchanges; NYSE is a physical location exchanged (auction market) and an example of capital market exchange; NASDAQ is an electronic dealer-based, over the counter market: dealers who make markets in different securities, it is a securities market for companies too small to be traded at NYSE
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