fin chapter 1

• 1. cash flow is what matters
• 2. money has a time value
• 3. risk requires reward
• 4. market prices are generally right
• 5. conflicts of interest cause agency problems

cash flows

have cash (vice versa)

determine incremental cash flows

between projected cash flows if the project is selected vs what they will be if the project isn't selected

earlier than later

we expect to be compensated with additional reward or return

the value of the firm

separation of management and the ownership of the firm

consistent with the goal of max shareholder wealth

where to invest? - capital budgeting

how to raise money to fund the investment? (capital structure)

how to manage cash flows from daily operations (working capital)

• business owned by an individual
• unlimited liability
• owner maintains title to assets/profits
• termination occurs at death or choice

two or more persons come together as co-owners

all partners are fully responsible for liabilities incurred by the partnership

one or more partners can have limited liability, restricted to the amount of capital invested in the partnership- must have 1 general partner with unlimited liability

limited partners can't participate in management of the business and their names can't appear in the name of the firm

• legally functions separate and apart from its owners
• owners dictate direction/policies of corporations
• owners liability is restricted to amount invested in company
• life of corporation doesn't depend on owners
• taxed separately

• limited liability,
• easy transfer of ownership
• unlimited life

• no secrecy of info
• maybe delays in decisions making
• greater regulation
• double taxation

• s-type corporation
• limited liability companies

• benefits: limited liability and no double taxation
• limitations: owners must be people so can't be used for joint ventures between 2 corporations

advantages: same as s-type

drawbacks: qualifications vary from state to state, can't appear like a corporation otherwise it will be taxed twice

• increase revenue
• reduce expenses
• lower government regulation standards
• increase global exposure

• country risk
• currency risk
• culture risk