Corporate Finance Test 1 Review

Corporate Finance Test 1 Review - Corporate Finance Test 1...

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Corporate Finance Test 1 Review Chapter 1 The controller's office handles cost and financial accounting, tax payments, and management information systems. The treasurer's office is responsible for managing the firm's cash and credit, its financial planning, and its capital expenditures. Capital Budgeting- is the process of planning and managing a firms long term investments. Regardless of the specific nature of an opportunity under consideration, financial managers must be concerned not only with how much cash they expect to receive, but also with when they expect to receive it and how likely they are to receive it. Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting. In fact, as we will see in the chapters ahead, whenever we evaluate a business decision, the size, timing, and risk of the cash flows will be by far the most important things we will consider. Capital Structure- the specific mixture of long term debt and equity the firm uses to finance its operations. Sole Proprietorship- is a business owned by one person. This is the simplest type of business to start and is the least regulated form of organization. o The owner of a sole proprietorship keeps all the profits. That's the good news. The bad news is that the owner has unlimited liability for business debts. This means that creditors can look beyond business assets to the proprietor's personal assets for payment. Similarly, there is no distinction between personal and business income, so all business income is taxed as personal income. o The life of a sole proprietorship is limited to the owner's life span, and the amount of equity that can be raised is limited to the amount of the proprietor's personal wealth. This limitation often means that the business is unable to exploit new opportunities because of insufficient capital. Ownership of a sole proprietorship may be difficult to transfer because this transfer requires the sale of the entire business to a new owner. Partnership- two or more owners. There are two basic types of partnerships: o General Partnership- In a general partnership, all the partners share in gains or losses, and all have unlimited liability for all partnership debts, not just some particular share. The way partnership gains (and losses) are divided is described in the partnership agreement which can be oral or written. o Limited Partnership- In a limited partnership, one or more general partners will run the business and have unlimited liability, but there will be one or more limited partners who will not actively participate in the business. A limited partner's liability for business debts is
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limited to the amount that partner contributes to the partnership. This form of organization is common in real estate ventures, for example. The primary disadvantages of sole proprietorships and partnerships as forms of business
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Corporate Finance Test 1 Review - Corporate Finance Test 1...

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