Corporate Finance Questions and Answers Grade A+
2023
capital budgeting - -the process of planning and managing a firm's longterm investments
-Role of Finance - -1) Manage Cash--> management of daily activities
2) What projects should we take on (investments)
-how should we finance them?
-Owners=Managers? - -Owners are the stockholders
Managers are the professionals hired to act on behalf of the owners
-CFO - -Chief Financial Officer
-Managerial, Financial accounting, taxes MIS (management info systems)
-Treasurer - -concerned with manageing cash, credit, financial planning
-Cash Flow is... - -KING
-Capital Strucutre - -Mix of debt and equity financing in a firm
-Relationship of Assets, Liabilities and Stockholder Equity - -A=L + SE
Note: SE=purchased stock and retained earnings
-Who gets paid first when a company goes bankrupt? - -Creditors. Shareholders are residual
claimant so they get paid last, if at all
-Working capital - -short term assets and liabilities
-cash
-receivables
-inventory
-accounts payable
-short term debt
-Net Working Capital = - -CA-CL
-should be positive in a healthy firm
-negative in a struggling firm or in a healthy firm that has a line of credit to get through a lean
time
-Sole Proprietorship - --business and individual are one legal entity
-least regulated
-unlimited liability for business debt
-owner keeps all profits --> taxed as income
, -owner=manager (generally)
-limited life (life of business=life of owner)
-sale of the business is difficult with this form of business
-limited ability to grow because it is hard to raise cash
-Partnership - --2+ people working together
-general partner
-active in buisness
-liable for business debt
-limited partners are not active in business
-the most they can lose is what they have invested
-all income goes to partners as ordinary income
-not easy to transfer ownership
-limited ability to grow because it is hard to raise cash
-Corporation - --legal person
-distinct from owners
-can borrow or own property
-can sue and be sued
-can enter into contracts
-can own stocdk in another corporation
-requires charter or articles of incorporation & bylaws
-must pay taxes
-dividends to owners are also taxed (double taxation)
-can easily transfer ownership
-unlimited life
-can issue new equity
-shareholders are not personally liable for business debts
-easy to borrow
-Limited Liability Company - -(LLC)
-behaves like a partnership with some liability shield from business debts
-Public Corporation - --trade on an exchange or over the counter (OTC)
-auction on exchange
-Over the counter - --one selling directly to another, who hopes to make a profit on the resale
-Goal of Financial Management - --make money or add value
-maximize current stock price (for one share of stock)
-How are shareholders in charge of the company - --Shareholders elect the board of directors -->
BoD hires and fires managers
-agency problem - -owners and managers do not have the same interestes
2023
capital budgeting - -the process of planning and managing a firm's longterm investments
-Role of Finance - -1) Manage Cash--> management of daily activities
2) What projects should we take on (investments)
-how should we finance them?
-Owners=Managers? - -Owners are the stockholders
Managers are the professionals hired to act on behalf of the owners
-CFO - -Chief Financial Officer
-Managerial, Financial accounting, taxes MIS (management info systems)
-Treasurer - -concerned with manageing cash, credit, financial planning
-Cash Flow is... - -KING
-Capital Strucutre - -Mix of debt and equity financing in a firm
-Relationship of Assets, Liabilities and Stockholder Equity - -A=L + SE
Note: SE=purchased stock and retained earnings
-Who gets paid first when a company goes bankrupt? - -Creditors. Shareholders are residual
claimant so they get paid last, if at all
-Working capital - -short term assets and liabilities
-cash
-receivables
-inventory
-accounts payable
-short term debt
-Net Working Capital = - -CA-CL
-should be positive in a healthy firm
-negative in a struggling firm or in a healthy firm that has a line of credit to get through a lean
time
-Sole Proprietorship - --business and individual are one legal entity
-least regulated
-unlimited liability for business debt
-owner keeps all profits --> taxed as income
, -owner=manager (generally)
-limited life (life of business=life of owner)
-sale of the business is difficult with this form of business
-limited ability to grow because it is hard to raise cash
-Partnership - --2+ people working together
-general partner
-active in buisness
-liable for business debt
-limited partners are not active in business
-the most they can lose is what they have invested
-all income goes to partners as ordinary income
-not easy to transfer ownership
-limited ability to grow because it is hard to raise cash
-Corporation - --legal person
-distinct from owners
-can borrow or own property
-can sue and be sued
-can enter into contracts
-can own stocdk in another corporation
-requires charter or articles of incorporation & bylaws
-must pay taxes
-dividends to owners are also taxed (double taxation)
-can easily transfer ownership
-unlimited life
-can issue new equity
-shareholders are not personally liable for business debts
-easy to borrow
-Limited Liability Company - -(LLC)
-behaves like a partnership with some liability shield from business debts
-Public Corporation - --trade on an exchange or over the counter (OTC)
-auction on exchange
-Over the counter - --one selling directly to another, who hopes to make a profit on the resale
-Goal of Financial Management - --make money or add value
-maximize current stock price (for one share of stock)
-How are shareholders in charge of the company - --Shareholders elect the board of directors -->
BoD hires and fires managers
-agency problem - -owners and managers do not have the same interestes
