Finance_Test_1-Study Guide - Finance Test 1 Sole...

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Finance Test 1 Sole Proprietorship: easy to form, few regulations, no corporate inc tax; limited life, unlimited liability, hard to raise capital Partnership: more than 1 person; same adv and disadvantages as sole partnership Corp: File w/ state, separate entity, can go forever, max tax rt on div=15%, unlim life, easy ownership transfer, lim liab, easy cap raising; 2x tax (corp & SH div), costly set up Agency relationship: exists when principal hires agent to act on behalf (exist b/w SH & managers, SH & creditors), separation of management and control (SH are owners) SH v.managers: managers inclined to act in own int; factors affect behavior (threat of firing, threat of takeover, managerial compensation plans, direct intervention by SH) SH vs creditors: SH through managers can max stock price that are detrimental to creditors; long run this will raise cost of debt and lower stock price (earnings drive price) Factors affecting stock price: projected earnings, timing & risk of earnings stream, debt use (cap struct), dist & div policy (pay out/retain?), tax rt (friction-high=slower growth)
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