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Description
Flashcards by Cyrill Bien Belardo, updated more than 1 year ago
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Created by Cyrill Bien Belardo
over 8 years ago
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| Question | Answer |
| What are the three types of managerial decisions? | 1. Capital Budgeting 2. Capital Structure 3. Working Capital Management |
| The process of planning and managing a firm's long-term investment. | Capital Budgeting |
| The mixture of debt and equity maintained by a firm. | Capital Structure |
| A firm's short-term assets and liabilities | Working capital |
| What are the three main forms of Businesses in Australia? | 1. Sole Proprietorship 2. Partnership 3. Corporation |
| A business owned by a single individual. | Sole Proprietorship |
| A business formed by two or more individuals or entities. | Partnership |
| A business created as a distinct legal entity owned by one or more individuals or entities. | Corporation |
| What are some advantages and disadvantages of Sole proprietorship? | Advantages • Easiest to start and least regulated • Single owner keeps all the profits • Taxed once as personal income Disadvantages • Limited to life of owner • Equity capital limited to personal wealth • Unlimited Liability • Difficult to sell ownership interest |
| What are some advantages and disadvantages of a Partnership? | Advantages • Two or more owners • More capital available • Relatively easy to start • Income taxed once as personal income Disadvantages • Unlimited liability • General partnership • Limited partnership • Partnership dissolves when one partner dies or wishes to sell • Difficult to transfer ownership |
| What are some advantages and disadvantages of a Partnership? | Advantages • Unlimited life • Separation of ownership and management • Transfer of ownership is easy • Easier to raise capital Disadvantages • Separation of ownership and management • Taxation of company profits can be an issue |
| What is the goal of Financial Management? | Maximise the market value of the existing owners' equity. |
| Cash Flows to and from the Firm | |
| What is a Primary Market? Give an example. | The corporation is the seller and the transaction raises money for the corporation. Securities are issued for the first time. For example, Bond Issuance and Private Placement. |
| What is a Secondary Market? Give an example. | The transaction is between sellers and securities are old. For example, dealer markets and auction markets (ASX). |
| What is the problem that occurs when there is a possibility that there is a conflict of interest between the owners and management of a firm? | Agency Problem |
| What are the actions by managers that reduce the value of the existing owner's equity? | Agency Costs |
| How do we make sure managers act in the best interest of shareholders? | ◦ Build incentives into compensation ◦ Shareholders have control through election of directors |
| Enumerate the balance sheet equation. | ASSETS = LIABILITIES+ OWNERS EQUITY A = L + E |
| What is the difference between current assets and non-current assets? | ◦ Current Asset : short life asset, normally converted to cash within a year WHILE ◦ Non-current asset: longer life (also called fixed assets) |
| How do you find the Net Working Capital? | NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES |
| What is Liquidity? | It is the speed and ease of converting an asset to cash. |
| How do you calculate Income? | Income = Revenues - Expenses |
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