Management and Organizational Studies 2275A/B Study Guide - Risk Premium, Cash Flow, Prime Rate

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2275A/B
• Professor: Henry Meredith

Document Summary

55 questions, 2 hours long, questions evenly distributed per lecture corporation"s advantage over other types: raise capital in two ways (equity financing) creditor and debtor relationship is a contractual relationship. Shareholder and corporation: ownership/property (rights and remedies) relationship. Valid loan agreement: must contain all the elements of contract typical business borrower and lender relationship? (example) fixed term loan: loan with defined term. Repaid on blended periodic installment payment of interest and principal. Risk premium (fixed interest rate): prime rate plus x% (depends on the level of the risk of the borrower) if, however, the risk of the borrower increases, bank may risk losing money. Cash flow gap, working capital, line of credit: no fixed principal. : no principal repayment, monthly repayment on interest for previous month. Specifically current assets: accounts receivable, inventory, any cash, etc. Both questions must be yes in order to receive the loan. Banks cannot afford to lose any money. (bank"s business model)