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Related Flashcards
Related Topics
Cards In This Set
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Sole Proprietorships
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- Single owner
- Limited life - Limited access to capital - Unlimited liability |
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Partnerships
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- Two or more owners
- Limited life - Limited access to capital - Unlimited Liability |
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Corporations
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- Unlimited life
- Limited Liability - Unlimited access to capital - Double taxation (corporate & personal income) |
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External Financing (Corporate Finance Function)
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- Raising capital to support companies operations and investment programs externally from shareholders(equity) or creditors(debt).
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Capital Budgeting (Corporate Finance Function)
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- Selecting the best projects in which to invest the resources of the firm, based on each project's perceived risk and expected return.
- Marginal benefits > Marginal costs. |
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Financial Management (Corporate Finance Function)
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- Managing firms internal cash flows, debt and equity financing.
- Ensure companies can pay off their obligations when they come due. |
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Corporate Governance (Corporate Finance Function)
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- Developing ownership and corporate governance structures for compaines that ensure managers behave ethically and make decisions that benefit shareholders.
- Board of Directors, Auditors, Compensation Packages. |
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Risk Management (Corporate Finance Function)
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- Managing firms exposure to systematic and unsystematic risk. Both insurable and uninsurable.
- Focuses on adverse interest rate movements, commodity price changes and currency fluctuations. |
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Financial Intermediary
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- An institution that raises capital by issuing liabilities against itself, and then lends that capital to corporate and individual borrowers.
- E.g. Insurance companies, credit unions, pensions. |
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What should a financial manager try to maximize?
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SHAREHOLDER WEALTH
- Measured by the market price of the firms stock - a firms stock price reflects the timing, magnitude and risk of the cash flows that investors expect a firm to generate over time. |
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Agency Costs/Problems
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The conflict between the goals of a firms owners and its managers.
Costs from the likelihood that managers may place personal goals ahead of corporate goals. |
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Hostile Takeover (Agency)
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The acquisition of one firm by another through an open-market bid for a majority of the target's shares if the target firm's senior managers do not support the acqusition.
Creates motivation for managers to act in the firm owners' best interests. E.g. improving profit. |
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Compensation Contracts
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Used to overcome agency costs and align managerial and stockholder interests.
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