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MTSU - FIN 3010 - Study Guide - Midterm

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MTSU - FIN 3010 - Study Guide - Midterm

School: Middle Tennessee State University
Department: Finance
Course: Business Finance
Professor: Gregory Nagel
Term: Fall 2015
Tags: finance
Name: FINANCE TEST 1 STUDY GUIDE
Description: Chapter 1: Introduction to Financial Management Chapter 2: Financial Statements, Taxes, and Cash Flow Chapter 3: Working with Financial Statements Chapter 4: Introduction to valuation: The Time Value of Money
Uploaded: 11/12/2017
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background image TEST 1 STUDY GUIDE  Chapter 1: Introduction to Financial Management The Four Basic Areas 1 Corporate finance 2 Investments­ deals with financial assets such as stocks and bonds.  a Careers: Stock broker, portfolio management, security analysis. Very demanding  and competitive, so it is not for everyone.  3 Financial institutions­ deal with financial matters like banks and insurance companies. 
4 International finance­ career involves international aspects of corporate finance, 
investments, or financial institutions.  Why study finance? Marketing and Finance ­ if you are a marketer, you work with budgets and understand  what is the best payoff from expenses and programs.  Accounting and Finance ­ accountant must know newer types of financial contracts and  how it impacts financial statements. Cost accounting also related to finance.  Management and Finance ­ must know finance for strategy, like profitability.  You and Finance­  help you make financial decisions. Finance will affect your personal  and business lives.  What is business finance?  Imagine starting your own business. Most important questions to be  ask:  What lines of business will you be in? Will you borrow the money or bring in other owners? How will you manage your everyday financial activities?  Financial Management Decisions First question: Capital budgeting ­ planning and managing a firm’s LT Investment.  o Most essence is evaluating the size, timing, and risk of future cash flows.  Second question: Capital structure ­ the specific mixture of long­term debt and equity the  firm uses to finance its operation.  Third question: Working capital management ­ refer to short­term assets and short term  liabilities. Day to day activity  Form of business organization Sole proprietorship ­ business owned by 1 person. Keep all profits. Unlimited liability for  debt.  a Advantages : easy to start, least regulated, single owner keeps all profit, taxed  once as personal income. 
background image b Disadvantages : Limited life, equity capital limited to owner’s personal wealth.  Unlimited liability. Difficult to sell ownership interest.  Partnership­ 2 or more owners, shares gain or losses between partner according to their  partnership agreement.  a General partnership ­  all partners share in gains or losses, all have unlimited  liability for all partnership debts.  b Limited partnership ­ 1 or more general partners will run the business and have  unlimited liability, and one or more limited partners who do not actively 
participate in the business. Limited partner’s liability for business debt is limited 
to the amount that partner distributes to the partnership. 
c Advatnages: 2 or more owner, more capital available, easy to start, income taed  once as personal income.  d Disadvatanges: Unlimited liability for business debts. Partnership dissolves when  1 partners dies or wished to sell. Difficulty of transferring ownership  Corporation ­ most important form in term of size in business world of US. A business  created as a distinct legal entity owned by 1 or more individuals or entities. Creating a 
corp. involves preparing articles of incorporation (name, its intended life, purpose, # of 
shares be issued) and set of bylaws. 
a Limited liability company and S ­ Corp  b Advantages : readily transferred, Life of corporation is not limited. Borrow money in its own name. Easier to raise capital.  c Disadvantages : Must pay double taxation. Seperation of ownership and  management.  A corporation by another name ­ joint stock companies, public limited companies, or limited  liability companies.  The goal of financial management:  Profit maximization­ do we profits this year? Maximize the current value per share of the existing stock.  Maximize the market value of the existing owner’s equity. Good decisions­ increased 
MKT Value of equity and bad decrease it. 
The agency problem and control of the corporation Agency relationship ­ between stockholders and management.  Agency problem­  conflict between the principal and the agent.  Managerial compensation­  manager often get offer to buy stock at a fixed price. Better  performance will often get promoted.  Control of the firm­  stockholder elect Board of Directors, then in turn hires and fires  management. 
background image o Proxy fight ­ unhappy stockholders can act to replace existing management.  o Stakeholder ­ someone other than a stockholder or creditor who potentially has a  claim on the cash flows of a firm  Financial Markets and the Corporation  1 Primary Markets ­ original sales of securities by government and corporations.  a 2 types of transactions are:  public offering and private offering.  2 Secondary markets ­ securities bought and sold after the original sale.  a 2 kind of secondary markets:  i Dealer markets : dealers buy and sell for themselves at their own risk. Ex:  car dealer 1 Dealer markets in stock and LT debt are called Over­the­counter  ( OTC).  2 ii Auction market:  df than dealer markets b/c they have physical location  ( Wall Street).  1 Purpose is to match those who wish to sell and those who wish to  buy.  QUESTION:  1 What are the four basic areas of finance? a Corporation 
b Investment 
c Financial 
d International finance 
2 What are the three types of financial management decisions, and what question are  they designed to answer? a First question: Capital budgeting ­ planning and managing a firm’s LT  Investment.  i What long­term investments or project should the business take on? b Second question: Capital structure ­ the specific mixture of long­term debt and  equity the firm uses to finance its operation.  i How should we pay for our assets? ii Should we use debt or equity? c  Third question: Working capital management ­ refer to short­term assets and  short term liabilities. Day to day activity  i How do we manage the day to day finances of the firm? 3 What are the 3 major forms of business organization? a Sole­ proprietorship  b Partnership­ General and Limited 
c Corporation­ S­Corp and Limited liability company
4 What is the goal of financial management?

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School: Middle Tennessee State University
Department: Finance
Course: Business Finance
Professor: Gregory Nagel
Term: Fall 2015
Tags: finance
Name: FINANCE TEST 1 STUDY GUIDE
Description: Chapter 1: Introduction to Financial Management Chapter 2: Financial Statements, Taxes, and Cash Flow Chapter 3: Working with Financial Statements Chapter 4: Introduction to valuation: The Time Value of Money
Uploaded: 11/12/2017
12 Pages 62 Views 49 Unlocks
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