Upgrade to remove ads
Only $2.99/month

Ch. 1 Introduction to Corporate Finance

Terms in this set (16)

corporate finance
the study of ways to answer the following questions:

1) What long-term investments should you take on? That is, what lines of business will you be in and what sorts of buildings, machinery, and equipment will you need?
2) Where will you get the long-term financing to pay for your investment? Will you bring in other owners or will you borrow the money?
3) How will you manage your everyday financial activities such as collecting from customers and paying suppliers?
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
partnership
a business formed by two or more individuals or entities
general partnership
all the partners share in gains and losses, and all have unlimited liability for all partnership debts, not just one particular share
partnership agreement
describes the way partnership gains (and losses) are divided
limited partnership
one or more general partners will run the business and have unlimited liability, but there will be one or more limited partners who will not actively participate in the business. A limited partner's liability for business debts is limited to the amount that partner contributes to the partnership
disadvantages of sole proprietorships and partnerships
1) unlimited liability for business debts on the part of the owners
2) limited life of the business
3) difficulty of transferring ownership

Each of these problems leads to a central problem: the ability of such businesses to grow can be seriously limited by an inability to raise cash for investment.
corporation
a business created as a distinct legal entity composed of one or more individuals or entities
articles of incorporation
necessary to form a corporation, must contain a number of things including the corporation's name, its intended life (which can be forever), its business purpose, and the number of shares that can be issued.
bylaws
rules describing how the corporation regulates its existence
double taxation
corporate profits are taxed twice: at the corporate level when they are earned and again at the personal level when they are paid out
limited liability company (LLC)
the goal of this entity is to operate and be taxed like a partnership but retain limited liability for owners. Essentially a hybrid of partnership and corporation.
variations of the corporate form of organization include...
joint stock companies, public limited companies, or limited liability companies
YOU MIGHT ALSO LIKE...