Corporate Finance
, sole proprietorship - CORRECT ANSWERS-1 owner, owner receives all the profits,
unlimited liab., 2 parts: 1. initial investment and 2. personal wealth. Taxed based on
personal income. Transfer of ownership is hard. Must be willing to buy all assets.
partnership - CORRECT ANSWERS-2 or more owners. profit is based on % invested
shared. Unlimited liab. between owners. Tax based on personal income. hard to
transfer ownership.
limited partnership - CORRECT ANSWERS-same characteristics as partnership. Only
looses money initially invested by partner. Some protection. Tax based on personal
income. Life of owners for co. life.
corporations - CORRECT ANSWERS-"legal person". distinct from the owners. Owners-
several, profit split among all owners. Liab. limited for shareholders. Double
taxation(corp & owners). transfer of ownership easy. Life is unlimited as long as shares
still trading on the market. Financing is easy
s corporation - CORRECT ANSWERS-subchapter status- different taxation- passes all
taxes to owner if they meet criteria. (100 owners)...(taxed like sole proprietorship)
c corporation - CORRECT ANSWERS-standard corporation
LLC - CORRECT ANSWERS-hybrid of partnership and corporation. LLC=XX
corporation. operates like partnership w/ looks similar to corp.
goal of financial management - CORRECT ANSWERS-maximize the current value per
share of the existing stocks (shareholder's wealth). If no stocks, it's to maximize market
value of existing owner's equity
sarbanes oxley requirement - CORRECT ANSWERS-1. each co's annual report must
have an assessment of the companies internal control structure
2. top managers must review & sign the reports
Agency Cost problem - CORRECT ANSWERS-Shareholders(principal)
Managers(agents)
2 agency costs - CORRECT ANSWERS-direct( monitoring, bonding, etc)
indirect(underinvestment, loss)
Agency cost of equity - CORRECT ANSWERS-conflict of equity holders vs. managers.
Managers spending investors money. Shareholders view on what managers will use
money for. Residual loss(money lost for jets, etc)
Agency cost of debt (asset Substitution) - CORRECT ANSWERS-debt holders vs.
equity holders. Debt holders will want you to take the project that is safest, equity will
want to take project that is more risky, but has better chance for big payoff.
, sole proprietorship - CORRECT ANSWERS-1 owner, owner receives all the profits,
unlimited liab., 2 parts: 1. initial investment and 2. personal wealth. Taxed based on
personal income. Transfer of ownership is hard. Must be willing to buy all assets.
partnership - CORRECT ANSWERS-2 or more owners. profit is based on % invested
shared. Unlimited liab. between owners. Tax based on personal income. hard to
transfer ownership.
limited partnership - CORRECT ANSWERS-same characteristics as partnership. Only
looses money initially invested by partner. Some protection. Tax based on personal
income. Life of owners for co. life.
corporations - CORRECT ANSWERS-"legal person". distinct from the owners. Owners-
several, profit split among all owners. Liab. limited for shareholders. Double
taxation(corp & owners). transfer of ownership easy. Life is unlimited as long as shares
still trading on the market. Financing is easy
s corporation - CORRECT ANSWERS-subchapter status- different taxation- passes all
taxes to owner if they meet criteria. (100 owners)...(taxed like sole proprietorship)
c corporation - CORRECT ANSWERS-standard corporation
LLC - CORRECT ANSWERS-hybrid of partnership and corporation. LLC=XX
corporation. operates like partnership w/ looks similar to corp.
goal of financial management - CORRECT ANSWERS-maximize the current value per
share of the existing stocks (shareholder's wealth). If no stocks, it's to maximize market
value of existing owner's equity
sarbanes oxley requirement - CORRECT ANSWERS-1. each co's annual report must
have an assessment of the companies internal control structure
2. top managers must review & sign the reports
Agency Cost problem - CORRECT ANSWERS-Shareholders(principal)
Managers(agents)
2 agency costs - CORRECT ANSWERS-direct( monitoring, bonding, etc)
indirect(underinvestment, loss)
Agency cost of equity - CORRECT ANSWERS-conflict of equity holders vs. managers.
Managers spending investors money. Shareholders view on what managers will use
money for. Residual loss(money lost for jets, etc)
Agency cost of debt (asset Substitution) - CORRECT ANSWERS-debt holders vs.
equity holders. Debt holders will want you to take the project that is safest, equity will
want to take project that is more risky, but has better chance for big payoff.
