Chapter 1 Introduction to Corporate Finance
The Four Basic Areas of Finance are: - Answer- 1. Corporate Finance
2. Investments
3. Financial Markets and Institutions
4. International Finance
What is the focus of corporate finance (3 basic issues)? - Answer- 1. What long-term investments
should a firm take on?
2. Where will you get the long-term financing to pay for your investment?
3. How will you manage your everyday financial activities such as collecting from customers and
paying suppliers?
Capital Budgeting - Answer- The process of planning and managing a firm's long-term investments
Capital Structure - Answer- The mixture of debt and equity maintained by a firm
Working Capital Management - Answer- The process of managing a firms short-term assets and
liabilities
Sole Proprietorship - Answer- business owned by a single individual
Advantages of Sole Proprietorship - Answer- 1.Easily Established
2.Minimal Organizational Costs
3.Keep all Generated Profits
Disadvantages of Sole Proprietorship - Answer- 1.Unlimited Liability
2.Losses absorbed by owner
3.Limited Capital
4.Limited Life
Partnership - Answer- An association of two or more individuals
2 Types of Partnership - Answer- 1. General
2. Limited
General Partnership - Answer- each partner is fully responsible for liabilities
Limited Partnership - Answer- - one or more partners have limited liability
- limited partners do not participate in the management
- limited partners are merely investors
one general partner must exist
Advantage of General Partnership - Answer- 1. Minimal Organizational Requirements
2. Negligible Government Regulations
Disadvantages of General Partnership - Answer- 1. All Partners have Unlimited Liability
2. Losses absorbed by owners
The Four Basic Areas of Finance are: - Answer- 1. Corporate Finance
2. Investments
3. Financial Markets and Institutions
4. International Finance
What is the focus of corporate finance (3 basic issues)? - Answer- 1. What long-term investments
should a firm take on?
2. Where will you get the long-term financing to pay for your investment?
3. How will you manage your everyday financial activities such as collecting from customers and
paying suppliers?
Capital Budgeting - Answer- The process of planning and managing a firm's long-term investments
Capital Structure - Answer- The mixture of debt and equity maintained by a firm
Working Capital Management - Answer- The process of managing a firms short-term assets and
liabilities
Sole Proprietorship - Answer- business owned by a single individual
Advantages of Sole Proprietorship - Answer- 1.Easily Established
2.Minimal Organizational Costs
3.Keep all Generated Profits
Disadvantages of Sole Proprietorship - Answer- 1.Unlimited Liability
2.Losses absorbed by owner
3.Limited Capital
4.Limited Life
Partnership - Answer- An association of two or more individuals
2 Types of Partnership - Answer- 1. General
2. Limited
General Partnership - Answer- each partner is fully responsible for liabilities
Limited Partnership - Answer- - one or more partners have limited liability
- limited partners do not participate in the management
- limited partners are merely investors
one general partner must exist
Advantage of General Partnership - Answer- 1. Minimal Organizational Requirements
2. Negligible Government Regulations
Disadvantages of General Partnership - Answer- 1. All Partners have Unlimited Liability
2. Losses absorbed by owners
