Introduction to Corporate Finance

Flashcards about corporate finance.

What are the three main types of financial management decisions?

Capital budgeting, capital structure, and working capital management.

What is capital budgeting?

The process of planning and managing a firm's long-term investments.

What is capital structure?

The mix of debt and equity maintained by a firm.

What is working capital management?

Managing a firm's short-term assets and liabilities.

Who is the top financial manager within a firm?

Chief Financial Officer (CFO)

What are the three major forms of business organization?

Sole proprietorship, partnership, and corporation.

What is a sole proprietorship?

A business owned and run by one person.

What is a partnership?

A business with two or more owners who share in the profits or losses of the business.

What is a corporation?

A legal entity separate from its owners, with its own rights, privileges, and liabilities.

What is a key advantage of a corporation?

Limited liability for its owners.

What is a key disadvantage of a corporation?

Double taxation (income taxed at the corporate rate and again at the personal rate when dividends are paid).

What is the goal of financial management?

Maximize the current value of the company’s stock.

What is the agency problem?

The conflict of interest between a principal and an agent.

In the context of corporate finance, who are the principals and who are the agents?

Stockholders are the principals, and managers are the agents.

What are agency costs?

The costs that arise from conflicts of interest between a principal and agent.