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Business Finance

by: Haylee Spencer

Business Finance FIN 3403

Haylee Spencer
University of Central Florida
GPA 3.79

Ann Whyte

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Ann Whyte
Class Notes
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This 7 page Class Notes was uploaded by Haylee Spencer on Thursday October 22, 2015. The Class Notes belongs to FIN 3403 at University of Central Florida taught by Ann Whyte in Fall. Since its upload, it has received 21 views. For similar materials see /class/227499/fin-3403-university-of-central-florida in Finance at University of Central Florida.

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Date Created: 10/22/15
Terms and Concepts Chapter 1 Goal of the firm Shareholder Wealth Maximization Sole proprietorship a business owned by a single individual General partnership a partnership in which all partners are fully liable for the indebtedness incurred by the partnership Limited partnership a partnership in which one or more of the partners has limited liability restricted to the amount of capital he or she invest in the partnership Corporation an entity that legally functions separate and apart from its owner Sype corporation a corporation that because of specific qualifications is taxed as though it were a partnership Limited liability company lLLCl a cross between a partnership and a corporation under which the owners retain limited liability but the company is run and is taxed like a partnership Gross profit sales or revenue minus the cost of goods sold Operating income sales less the cost of goods sold less operating expenses Taxable income gross income from all sources except for allowable exclusions less any tax deductible Dividend exclusion Depreciation the means by which an asset s value is eXpensed over its useful life for federal income tax purpose Capital gain as defined by the revenue code a gain results from the sale or exchange ofa capital asset Capital loss as defined by the revenue code a loss results from the sale or exchange ofa capital asset Gross Income a firm s dollar sales from its product or services less the cost of producing or acquiring them Net capital loss car backlcarryforward a tax provision that permits the taxpayer first to apply a loss against the profits earned in the 2 prior years carryback fthe loss has not been completely absorbed by the profits in these 2 years it may be applied to taxable profits in each of the 20 following years carryforward Operating loss carrybackcarryforwa rd Terms and Concepts Chapter 2 Public offering a security offering where all investors have the opportunity to acquire a portion of the financial claims being sold Private placement A security offering limited to a small number of potential investors Venture capital Funds made available to start up companies or companies in the early stages of business as well as firms in quotturn around situations theses are risky investments generally in innovative enterprises and many times in high technology Primary market a market in which securities are offered for the first time for sale to potential investors Secondary market a market in which currently outstanding securities are traded Initial ublic offerin IPO the first time a company issues its stock to the public Seasoned eguity offering lSEOl the sale of additional stock by a company whose shares are already publicly traded Money market all institutions and procedures that facilitate transactions from short term instruments issued by barrows with very high credit ratings Capital market all institutions and procedures that facilitate transactions in long terms financial instruments Organized security exchange formal organizations that facilitate the trading of securities Overthecounter markets all security markets except organization exchange The money market is an over the counter market Most corporate bonds also are traded in this market NASDAQ National Association of Security Dealers Automated Quotation founded feb 81971 a telecommunication system that provides a national information link among the brokers and dealers operating in the over the counter markets a quotation system Investment banker a financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds Underwriting the purchase and subsequent resale of a new security issue The risk of selling the new issue at a satisfactory profitable price is assumed underwritten by the investment banker Investment banker functions Financial specialist who underwrites and distributes new securities and advices corporate clients about raising new funds Negotiated purchase a rm that needs funds makes contact with an investment banker If everything goes wells negations begin to determine the price the investment banker and the syndicate will pay for the securities Competitive bid purchase several underwriting groups bid for the right to purchase the new issue from the corporation that is rising funds the group that receives the issue is chosen by an action process Best efforts basis investment banker acts as an agent rather than as a principal in the distribution process securities are NOT underwritten investment banker attempts to sell the issue in return for a xed commission on each actually sold Unsold securities are then returned to the corporation Privileged Subscription the process of marketing a new security issue to a select group of investors Dutch auction a method of issuing securities common Stock where investors place bids indication how many share they are willing to buy and at what price The price the stock is than sold for becomes the lowest prices at which the issuing company can sell all the available shares Direct sale the sale of securities by a corporation to the investing public without the services of an investment banking firm Flotation costs the transactions cost incurred when a firm raises funds by issues a particular type security SarbanesOxley Act of 2002 Corporate advisors who have access to or in uences on a company decisions strictly accountable in a legal sense for any instances of misconduct to protect investors by improving the accuracy and reliability of corporation disclosures made pursuant to the securities laws and for other purposes Opportunity cost of funds the next best rate of return available to the investors for a given level of risk Maturiy Premium the additional return required by investors in long term securities to compensate them for the greater risk of price fluctuations on the securities cause by interest rate change Liguidity Premium the additional return required by investors for securities that cannot be quickly converted into cash at a reasonably predictable price Nominal rate of interest the interest rate paid on debt securities without an adjustment for any loss in purchasing power Real rate of interest the nominal quoted rate of interest less any loss in purchasing power of the dollar during the time of the investment Term structure of interest rates the relationship between interest rates and then term to maturity where the risk of default is held constant Unbiased expectations theory the theory that the shape of the term structure of interest rates is determined by an investor s expectations about future interest rates Liguidity preference theory the theory that the shape of the term structure of intrest rates is determined by an investor s additional required interest rates in compensation of additional risk Market segmentation theory the theory that the shape of the term structure of intrest rates implies that the rate of interest for a particular maturity is determined solely by demand and supply for a given maturity this rate is independent ofthe demand and supply for securities having different maturities Yield to maturity the rate of return a bound holder will receive if the bond is held to maturity Terms and Concepts Chapter 3 amp 4 Income statement Balance sheet a statement that shows a firm s assets liabilities and shareholder equity at a given point in time It is a snapshot of the firm s financial position on a particular date Current assets consist primarily of cash marketable securities accounts receivables inventories and prepaid expenses Fixed assets assets such as equipment buildings and lands Debt liabilities consisting of such sources as credit extended by suppliers or a loan from a bank Eguity stockholders investment in the firm and the cumulative profits retained in the business up to the date of the balance sheet Working capital the firm current assets less its non interestObearing current liabilities rather than all of its current liabilities


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