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3715 Test 1

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Louisiana State University
FIN 3715

Chapter 1What is corporate financeo1 What long term investments should you take ono2 Where will you get long term financing to pay for your investmentso3 How will you manage your everyday financial activities such as collecting from customers and paying suppliersFinancial Management DecisionsoCapital budgetingProcess of planning and managing a firms long term investmentsTries to identify investment opportunities that are worth more to the firm than they cost to acquireoCapital StructureSpecific mixture of long term debt and equity the firm uses to finance its operationsoWorking Capital ManagementRefers to a firms short term assets such as inventory and its short term liabilities such asowed to suppliersDay to day activity that ensures firm has sufficient resources to continue its operations and avoid costly interruptionsForms of Business OrganizationoSole ProprietorshipOwned by one personMore of these than any other typesAdvantageOwner keeps all profitsDisadvantageOwner has unlimited liability for business debtsCreditors can look beyond business assets to proprietors personal assets for paymentAll business income is taxed as personal incomeoPartnershipSimilar to proprietorship except that there are 2 or more ownersGeneral partnershipAll partners share in gains and losses and all have unlimited liability for all partnership debts not just some particular shareLimited partnershipOne or more general partners will run the business and have unlimited liability but there will be one or more limited partners who will not actively participate in the businessA limited partners liability for business debts is limited to the amount that partner contributes to the partnershipCommon in real estate venturesoPrimary disadvantages of sole proprietorships and partnerships as forms of business areUnlimited liability for business debts on the part of the ownersLimited life of the businessDifficulty of transferring ownershipoCorporationMost important form in terms of size of business organization in USCorporation is a legal person separate and distinct from its owners and it has many of the rights duties and privileges of an actual personCan borrow money own property can sue or be sued can enter into contracts Forming a corporation involves preparing articles of incorporation and a set of bylawsCorporation considered a resident of that stateBylawsdescribing how corp regulates its existenceoExampleHow directors are electedStockholders and managers usually separate groupsStockholders elect board of directors who then hire managers
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