BSNS114 Test Latest Update
goal of financial decision making - Answer maximise the value of the firm /shareholder
wealth
3 decisions that help maximise the value of the firm - Answer the investment decision-
whether to invest
financing decision- how going to fund it
working capital management decision- has enough to manage day to day
balance sheet - Answer assets, liabilities, owners equity
equity - Answer capital received from owners (investors)
liabilites - Answer what a firm owes
assets - Answer what a firm owes
look at what for an objective view - Answer objective view
ways to finance - Answer debt- contractional obligation
equity- keeps the earnings perpetual
assets made up of - Answer current assets, long term assets
sole proprietorship - Answer one person is responsible for providing capital and
managing the firm.
no separation of ownership and management
advantages of sole proprietorship - Answer -simple (easy to form)
-can do whatever you want with the firm
-least expensive and regulated form of firm
-don't share profits or losses
-taxed once as personal income
disadvantages of sole proprietorship - Answer -limited access to capital to expand
-costly to transfer ownership
-unlimited liability
, partnership - Answer 2 or more business owners have joined together legally to manage
and share its profits
General partnership - Answer all partners are owners and active in managing the firm
-equally share profits and losses
-don't decide on own
-all partners invest money
limited partnership - Answer has both general partners who are owners and managers,
and limited partners, who are owners not managers
not responsible for management but still invest personal belongings are not liable
Advantages of a partnership - Answer 2 or more owners
-more capital available
-relatively easy to start
-income taxed once as personal income
disadvantages of a partnership - Answer unlimited liability for general
- partnership dissolves when one dies or sells
-difficult to transfer ownership
Corportation - Answer legal process to set up a corporate entity
more expensive to set up and run
can't be sole or general
advantages of a corporation - Answer -separate from its owners legal entity
-easy to transfer ownership
-limited liability (only lose money put into shares)
disadvantages of a corporation - Answer separation of ownership and management may
create conflict of interest
all profits are taxed at a corporate tax rate
costly to establish and register
whats a huge problem in a corporation - Answer conflict of interest
in theory managers should - Answer set aside self interest and maximise shareholder
wealth
goal of financial decision making - Answer maximise the value of the firm /shareholder
wealth
3 decisions that help maximise the value of the firm - Answer the investment decision-
whether to invest
financing decision- how going to fund it
working capital management decision- has enough to manage day to day
balance sheet - Answer assets, liabilities, owners equity
equity - Answer capital received from owners (investors)
liabilites - Answer what a firm owes
assets - Answer what a firm owes
look at what for an objective view - Answer objective view
ways to finance - Answer debt- contractional obligation
equity- keeps the earnings perpetual
assets made up of - Answer current assets, long term assets
sole proprietorship - Answer one person is responsible for providing capital and
managing the firm.
no separation of ownership and management
advantages of sole proprietorship - Answer -simple (easy to form)
-can do whatever you want with the firm
-least expensive and regulated form of firm
-don't share profits or losses
-taxed once as personal income
disadvantages of sole proprietorship - Answer -limited access to capital to expand
-costly to transfer ownership
-unlimited liability
, partnership - Answer 2 or more business owners have joined together legally to manage
and share its profits
General partnership - Answer all partners are owners and active in managing the firm
-equally share profits and losses
-don't decide on own
-all partners invest money
limited partnership - Answer has both general partners who are owners and managers,
and limited partners, who are owners not managers
not responsible for management but still invest personal belongings are not liable
Advantages of a partnership - Answer 2 or more owners
-more capital available
-relatively easy to start
-income taxed once as personal income
disadvantages of a partnership - Answer unlimited liability for general
- partnership dissolves when one dies or sells
-difficult to transfer ownership
Corportation - Answer legal process to set up a corporate entity
more expensive to set up and run
can't be sole or general
advantages of a corporation - Answer -separate from its owners legal entity
-easy to transfer ownership
-limited liability (only lose money put into shares)
disadvantages of a corporation - Answer separation of ownership and management may
create conflict of interest
all profits are taxed at a corporate tax rate
costly to establish and register
whats a huge problem in a corporation - Answer conflict of interest
in theory managers should - Answer set aside self interest and maximise shareholder
wealth
