Chapter 1 Corporate Finance Flashcards

Flashcards based on lecture notes covering introduction to corporate finance, financial management, business organizations, agency problems, and financial markets.

What is Capital Budgeting?

Planning and managing a firm’s long-term investments.

What is Capital Structure?

The mixture of debt and equity maintained by a firm.

What is Working Capital Management?

A firm’s short-term assets and liabilities.

What is a Sole Proprietorship?

A business owned by a single individual.

What is a Partnership?

A business formed by two or more individuals or entities.

What is a Corporation?

A business created as a distinct legal entity composed of one or more individuals or entities.

What is a Primary Market?

A market where the corporation is the seller, raising money for the corporation.

What is a Secondary Market?

A market where one owner or creditor sells to another.

What are Over-the-Counter (OTC) Markets?

Markets with dealers connected electronically.

What are Auction Markets?

Markets that have a physical location and match buyers and sellers.

What is the primary goal of financial management?

The goal is to maximize the current value per share of the existing stock.

What is an Agency Relationship?

Exists when someone (the principal) hires another (the agent) to represent his or her interests.

What is the Agency Problem?

The possibility of conflict of interest between the stockholders and management of a firm.

What are Agency Costs?

Costs of the conflict of interest between stockholders and management.

Who is a Stakeholder?

Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.

Name one career path in Investments.

Financial advisor, portfolio manager, security analyst

Give an example of a Financial Institution.

Banks and insurance companies

What top officer is the Financial management function usually associated with?

Vice president of finance or chief financial officer (CFO)

What does the Controller's office handle?

Cost and financial accounting, tax payments, and management information systems

What is the Treasurer's office responsible for?

Managing the firm’s cash and credit, financial planning, and capital expenditures

What is an advantage of a sole proprietorship?

Simplest type of business to start and least regulated form of organization

What is a disadvantage of a sole proprietorship?

Owner has unlimited liability for business debts

What is an advantage of a corporation?

Ownership can be readily transferred and life of corporation is unlimited

What is a disadvantage of a corporation?

Corporate profits are taxed twice

What is Accountability in a benefit corporation?

A benefit corporation must consider how an action will affect shareholders, employees, customers, the community, and the environment.

What is Transparency in a benefit corporation?

A benefit corporation must provide an annual report detailing how the company pursued a public benefit during the year.

What is Purpose in a benefit corporation?

A benefit corporation must provide a public benefit, either to society as a whole or the environment.

What are two classes of financial goals for a corporation?

Profitability goals and controlling risk

How may existing management be replaced by stockholders?

Proxy fights and takeovers

What is the intended purpose of the Sarbanes-Oxley Act (SOX)?

To protect investors from corporate abuses