Favoured In Finance

Corporation

Board of Directors is appointed by shareholders

Executives CEO, COO, CFO are appointed by the Board of Directors

Limited liability, shareholders face double taxation

Relatively hard to set top

Proprietorship

Owned by 1 person

Unlimited liability

Taxed as an individual

Easy to form

Partnership

Same as a sole propertiership with unlimited liability and taxed as an individual but with 2 or more owners

Intrinsic Value vs Stock Price

Intrinsic Value is based on future cash flows while stock price/market value reflects people’s perception

At equilibrium market price is equal to intrinsic value

At Equilibrium

Future Value

Value that a lump sump or a stream of payments will grow to over time based on an assumed rate of interest

Present Valur

Value of a lump sum or a stream of payments received in the future discounted back to the present at a defined rate of return

Compound Intreset

Interest on Intrest

Discounting

Compounding in reverse for the present value

Simple Interest

Interest earned only on the original investment

Ordinary Annuity

Payment paid at the end of the period

Annuity Due

Payment paid at the beginning of the period

Nominal Rate

the quoted interest rate that ignores the number of compounding rates

This is the rate usually seen in contracts, quoted by banks, etc.E

Effective Annual Rate/Periodic Rate

The nominal rate/amount of compounding periods in a year

Time Value of Money

A dollar today is worth more than a dollar in the future because you have time to invest that dollar and earn interest on it

Loan Amortization

Scheduling out fixed loan payments in a way that equals out to zero after a period of years

(In it the first payment has the highest percentage and dollar amount that is applied to interest, all payments after the amount applied to interest is going down)

Balance Sheet

A snapshot of a firm’s financial position at. a point time

A Balance Sheet states assets and liabilities and stockholder equity

Income Statement

Summarizes a firm’s revenues and expenses over a given period of time

Statement of Cash Flows

Reports the impact of a firm’s activities on cash flows a given period

Statement of stockholder’s equity

Shows how much of the firm’s earnings were retained, rather than paid out as dividends

Shows changes in stockholder equity