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Description
Flashcards by Georgia Tan, updated more than 1 year ago
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Created by Georgia Tan
over 9 years ago
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| Question | Answer |
| Companies invest in ______, which generate ________ . | real assets income |
| How do companies finance their investments? (3 ways) | 1. borrowing 2. retaining and reinvesting cash flow 3. selling additional shares of stock to the corporation’s shareholders. |
| The corporation’s financial manager faces two broad financial decisions - what are they? | Investment Decision: First, what investments should the corporation make? Financing Decision: Second, how should it pay for those investments? |
| Name 3 ways that shareholders may differ | 1. wealth 2. risk tolerance 3. investment horizon. |
| When do financial managers add value? | Financial managers add value whenever the corporation can earn a higher return than shareholders can earn for themselves. |
| Name the 5 key themes that occur throughout the Finance Textbook | 1. Corporate finance is all about maximizing value. 2. The opportunity cost of capital sets the standard for investment decisions. 3. A safe dollar is worth more than a risky dollar. 4. Smart investment decisions create more value than smart financing decisions. 5. Good governance matters. |
| Investment decisions are also known as (name 2), because... | capital budgeting or capital expenditure (CAPEX) decisions, because most large corporations prepare an annual capital budget listing the major projects approved for investment. |
| The choice between debt and equity financing is called | the capital structure decision |
| Corporations raise equity financing in two ways. Name these 2 ways | 1. they can issue new shares of stock. 2. the corporation can take the cash flow generated by its existing assets and reinvest the cash in new assets. |
| What is the "payout decision"? | The decision to pay dividends or repurchase shares is called the payout decision. |
| Shareholders of a corporation have: _________ __________. What does this mean? | limited liability. which means that they cannot be held personally responsible for the corporation’s debts. |
| What are the implications of separation of ownership and control ? | 1. Corporations can, in principle, live forever 2. Can open the door for managers and directors to act in their own interests rather than in the stockholders’ inter- est. |
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