corporate finance ch. 1

capital budgeting
the process of planning and managing a firm's long-term investments.
capital structure
the mixture of debt and equity maintained by a firm
working capital
a firm's short term assets and liabilities
sole proprietorship
a business owned by a single individual
a business formed by two or more individuals or entities
a business created as a distinct legal entity owned by one or more individuals or entities
agency problem
the possibility of conflict of interest between the owners and management of the firm
someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.
capital budgeting
what long term investments should the firm make?
capital structuring
how will this investment be financed?
working capital management
how will we manage the day-to-day financial activities?
what is the primary goal of financial management?
to maximize share value for shareholders
sarbox or sox
sets up compliance, driven by corporate scandals
sarbox or sox
created to minimize accounting fraud
sarbox or sox
intended to strengthen protection against accounting fraud and financial malpractice.
digital stock
physical stock
speed and ease of conversion to cash without significant loss of value.
market value
________ ________ is more important than book value when making decisions
loss of value
_________ does not affect cash flow.
cash flow from assets
operating cash flow
net capital spending
cash flow from assets =
cash flow to creditors + cash flow to stockholders
cash flow from assets =
OCF - net capital spending - change in NWC
earnings before interest and taxes (EBIT) + depreciation - taxes
cash flow to stockholders
dividends paid - net new equity raised