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Flashcards in CHP 1 Deck (24)
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1
Q

Shareholder Wealth

A

Present Value of expected future returns to owners(shareholders) of the firm.

2
Q

How is Shareholder Wealth Measured and calculated?

A

Measured by the market value of common stock

equation: # of shares outstanding * Market Price per share

3
Q

Discount rate

A

rate of interest used in process of finding present values; AKA required rate of return

4
Q

Stakeholders

A

groups in a firm: customers, employees, suppliers, stockholders, bondholders, community neighbors and creditors

5
Q

Agency Relationships

A

one or more individuals (principals) hire another individual (agent) to perform a service on their behalf

6
Q

Agency Relationships often lead to agency ____ and ____?

A

Problems and cost

7
Q

What are the 2 most important agency relationship in finance?

A
  1. b/w stockholders (owners) and managers

2. Owners and creditors

8
Q

Agent

A

party who acts on behalf of the principal and has legal responsibility to act in best interests

9
Q

Agency costs

A

cost incurred by owners of firm when managed by others

10
Q

What are some examples of Agency Costs?

A

monitoring costs, bonding costs, and any losses that cannot be eliminated economically by monitoring and bonding

11
Q

Profit

A

Revenue-Cost

12
Q

Book value

A

historic cost of company’s assets

13
Q

Cash Flow

A

amount of cash collected/paid out by firm

14
Q

Sole Proprietorship

A

business owned by one person

15
Q

What is an advantage and some disadvantages to Sole Proprietorship?

A

A: 1.Easy formation
D: 1. unlimited liability
2. difficulty raising funds for growth

16
Q

Partnership and what are the 2 classifications?

A

owned by 2 or more persons

classified as general or limited

17
Q

Corporation

A

“Legal Person” composed of one or more actual individuals/legal entities

18
Q

What are some advantages and disadvantages of incorporating?

A

limited liability, permanency, and flexibility

ownership separate from management, complexity, double taxation

19
Q

What are the 3 main types of Securities companies issue?

A

Debt Securities:
*Bonds-fixed income
Equity securities:
*Preferred stock-a hybrid:considered a fixed income security
*Common stock-ownership: dividends goes to owners

20
Q

List in order the priority of corporate securities and mentions the risk level of ROR?

A
  1. Debt Securities (bonds): Least risky
  2. Preferred Stock: middle risk
  3. Common Stock: most risky
21
Q

What is the primary goal of Financial Managers?

A

Maximize shareholder(stockholder) wealth

22
Q

How is Market Capitalization calculated?

A

shares outstanding * price

23
Q

T/F Maximizing profits is the same as maximizing shareholder wealth?

A

FALSE!!!!!!!!!

24
Q

What determines value of cash flow?

A

Size, timing and risk