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FIN6901 Ch1 - Goals and Governance of the Corporation

  1. Apple decides to spend $500 million to develop a new iPhone. Is this a financing or investment decision?
    Investing
  2. GE borrows $400 million from bond investors. Is this a financing or investment decision?
    Financing
  3. Microsoft issues 100 million shares to buy a small technology company. Is this a financing or investment decision?
    Financing
  4. What is a corporation?
    A business organized as a separate legal entity owned by stockholders.
  5. What are the two types of corporations?
    • Public
    • Private
  6. What is the difference between a public and private corporation?
    Public corporations are traded on the stock market.
  7. What are the benefits of a corporation?
    • Limited liability
    • Infinite lifespan
    • Ease of raising capital
  8. What are the drawbacks of a corporation?
    • Corporations face the problem of double taxation (Corporate & capital gains)
    • Improper corporate structures may lead to "Agency Problems" (Manager behavior)
  9. What are the forms of business organizations?
    • Corporations
    • S Corporation
    • Sole Proprietorships
    • Partnership
    • LLPs and LLCs
    • Professional Corporation
  10. What important about an S Corporation?
    They don't pay taxes.
  11. What is a sole proprietorship?
    A corporation with one owner.
  12. What is a partnership?
    Similar to a sole proprietorship except with several founders.
  13. Who are professional corporations for?
    • Lawyers
    • Doctors
  14. What are the 3 top-level financial managers?
    • Chief financial officer
    • Treasurer
    • Controller
  15. What is the main goal of the corporation?
    Maximize shareholder value
  16. Does value maximization justify unethical behavior?
    No
  17. What are agency problems?
    When managers are agents for stockholders, but the managers may act in their own interest rather than maximizing value.
  18. What are some possible takeover solutions?
    • Compensation plans
    • Board of directors
    • Blockholders
    • Takeovers
    • Specialist monitoring
    • Legal and regulatory requirements
Author
honestkyle
ID
241432
Card Set
FIN6901 Ch1 - Goals and Governance of the Corporation
Description
Goals and Governance of the Corporation
Updated

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