Fin 301 Exam 1 Notes - Professor Doung PDF

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Professor Doung...

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Finance 301 Exam 1 1/15 Sole Proprietorship: Manager is the sole owner and keeps profits after taxes - Unlimited liability - Easy to establish - Taxed once - Shoe repair Partnership: multiple people - Unlimited liability - Easy to establish - Taxed once - Restaurant Corporation: Shareholders have separate ownership - Limited liability - Difficult to establish - Double taxation - Steel manufacturing firm

Why do corporations dominate the business landscape? - Limited Liability - Shareholders avoid risk beyond investment - Continuity - Ownership can be easily transferred - Easier to raise external funds - Large projects can be undertaken

Decisions about corporate finance: Capital budgeting: - Where and how to invest the money - Real Assets - Tangible real assets - Inventory and supplies - Plant and machinery - Offices and equipment - Intangible real assets - Technical expertise - Patents - Trademarks Financing Decision: - How to finance a business - Financial Assets - Bank loans - Bonds - Shares of stock CAPITAL VS. FINANCING 1. Determining how much to spend on a new computer. CAPITAL (investment with a real asset) 2. Issuing Shares of Stock to finance the construction of a new manufacturing plant. FINANCING (dealing with stock) 3. Hiring a new research chemist at a plastics company. CAPITAL (intangible) 4. Buying the rights to use NFL logos on clothing. CAPITAL (trademark, intangible) 5. Borrowing money from the bank to repurchase shares of stock in the secondary market. FINANCING (borrowing money) 6. Deciding to lay off 50 workers at a manufacturing plant. CAPITAL (intangible, hiring) 7. Paying the annual dues to an industry organization. CAPITAL (intangible) Primary Market vs. Secondary Market - Primary Market: the initial sale of securities from the issuer (firm) to investor - Investor buys directly from the firm - Secondary: The subsequent trading of these securities among investors. - Investors share with investors - NASDAQ - Stocks, most common Capital Market vs. Money Market - Capital Market: long term investment (one year or more) - Money Market: short term investment (one year or less) Public vs. Private Market - Public: new york stock exchange - Private: venture capital (VC)

1/22 - If a bank pays 5% interest on deposits, how much will a deposit of TVM (time value money): problems involve identifying the payment or receipt of cash over time...