Chapter 1 - Chapter 1 Finance study of how assets are...

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Chapter 1 Finance – study of how assets are allocated over time and under uncertainty (risk); Invest to get some return Finance Management functions within a firm asks 3 questions : 1. What long term investments should a firm take on? (capital budgeting) 2. How does the firm finance the investment over time? (capital structure: debt vs. equity; how to pay for the long term investment) 3. How will a firm manage day to day financial activities? (working capital: short term assets/liability management) 3 forms of business organization : 1. Sole Proprietorship - business owned by 1 person Advantages: - easy start up - Lower regulation - 1 person keeps all profits - Income taxed once Disadvantages: - Limited life - Limited equity capital - Unlimited liability - Low liquidity (how fast assets turn into cash) 2. Partnership – business owned by 2 or more people General Partnership – all partners share in gain and losses; all partners have unlimited liability, limited partners liability limited to the contribution to the
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Chapter 1 - Chapter 1 Finance study of how assets are...

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