Finance 306 Test#1 Review

Finance 306 Test#1 Review - Finance 306 Test #1 Review...

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Finance 306 Test #1 Review Chapter 1: Four basic areas of Finance: 1. Corporate finance 2. Investments 3. Financial institutions 4. International finance Capital budgeting – the process of planning and managing a firm’s long term investments Capital structure – the mixture of debt and equity maintained by a firm Working capital – a firm’s short term assets and liabilities 3 forms of business organizations: 1. Sole proprietorship – a business owned by a single individual. Disadvantages of a sole proprietorship include unlimited liability, no distinction between personal and business income, and the life of a sole proprietorship is limited to the owner’s life span. 2. Partnership – a business formed by two or more individuals or entities. Disadvantages are similar to those of a sole proprietorship, but for all partners. - Limited Liability Partnership – one or more general partners will run the business and have unlimited liability, while there is also limited partners who do not actively participate in the business. A limited partner’s liability is limited to the amount that partner contributes to the partnership. ***Primary disadvantages of Sole Proprietorship and Partnerships : 1. Unlimited liability for business debts on the part of the owners 2. Limited life of the business 3. Difficulty of transferring ownership 3. Corporation – a business created as a distinct legal entity owned by one or more individuals or entities. ***Primary advantages of a Corporation : 1. Limited Liability for business debts 2. Unlimited life of the business 3. Relative ease of transferring ownership
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***Primary disadvantages of a Corporation : 1. Double Taxation 2. More complicated to start than other forms of business organizations Other names for corporations: - joint stock companies - public limited companies - limited liability companies
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Finance 306 Test#1 Review - Finance 306 Test #1 Review...

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