WGU C708 V4 Complete Exam Graded A+

Finance - Answer The study of fund management and asset allocation over time *time drives finance decisions Accounting vs. Finance vs. Economics - Answer - Accounting looks at the past - Finance uses past information for looking into the future - Economics looks at what happens if...cause and effect Why should we care about finance in business? - Answer 1. Maximize shareholder value 2. Choose between different investment choices 3. Make sure money is in the right place at the right time *Focus on cash flow, not profit! How do finance professionals make investment decisions? - Answer 1. How can we finance this investment efficiently? 2. Will this investment maximize firm valuation & shareholder value? 3. Is this investment decision in line with our risk objectives? *no guarantee For Profit Business Types - Answer 1. Sole Proprietorship 2. Partnership 3. Corporation Sole Proprietorship - Answer - smallest type of business - easiest to start - one owner who is solely liable for business decisions - all profits of the business become the owners income General Partnership - Answer - two owners at a minimum ("Partner") - Owners personally SHARE the liability for the business debts and other financial decisions - Partners share the business profits - Business profits are considered income for the individual partners...partnerships (the business) don't pay federal taxes Corporation - Answer - Business now becomes it's own taxable entity - Corporation must create a board of directors - Corporation becomes liable for the debts and financial decisions of the business - Corporation seeks external funding - Shareholders - Business valuation - Connection with the financial markets - Principle/Agent problem (conflict)Business Valuation - Answer For shareholders to invest in a company, they want to know the companies value (valuation). -Is this a good investment for me? Prospective investors conduct a "valuation process" by analyzing the company financial statements to help determine the companies valuation. -Historical performance does NOT predict future performance. Principle/Agent problem (conflict) - Answer When the principles (shareholders) preferences are not aligned with the agents (manager(s)) preferences. -Detailed contracts spell out expectations and incentives Connection with the financial markets - Answer Shareholders (company stock ownership) -Voting rights -May lose if company underperforms