Finance Basics
Finance is the study of how this is managed.
What is money?
Explanation: Finance focuses on how money is managed and used.
Deciding what major projects or investments a company should undertake is called this.
What is Capital Budgeting?
Explanation: Capital budgeting asks what long-term investments the company should make.
This business organization has one owner and is generally easy and inexpensive to start.
What is a Sole Proprietorship?
Explanation: A sole proprietorship has one owner who receives the business's profits.
Anyone who is affected by a company is known as this.
What is a stakeholder?
Explanation: Employees, customers, suppliers, and government are all examples of stakeholders.
New securities are sold to investors for the first time in this market.
What is the Primary Market?
Explanation: The primary market is where securities are originally issued.
Buying assets such as stocks and bonds to grow money falls under this area of finance.
What are Investments?
Explanation: Investments involves purchasing financial assets with the goal of growing wealth.
Deciding whether to borrow money or sell stock to finance a project is called this.
What is Capital Structure?
Explanation: Capital structure focuses on how a business finances its investments, especially debt versus equity.
This type of business organization is legally separate from its owners.
What is a Corporation?
Explanation: A corporation is considered a separate legal entity.
This occurs when managers do not act in the best interests of the company's shareholders.
What is an agency problem?
Explanation: Managers act as agents for the owners, but their interests may not always align.
Existing securities are bought and sold between investors in this market.
What is the Secondary Market?
Explanation: The company normally does not receive money when investors trade securities in the secondary market.
Venmo, cryptocurrency, and robo-advisors are examples of this area of finance.
What is Fintech?
Explanation: Fintech means using technology to provide financial products and services.
Managing a company's short-term cash and day-to-day financial needs is called this.
What is Working Capital Management?
Explanation: Working capital management involves making sure a company can handle everyday expenses and obligations.
This is a major disadvantage of a sole proprietorship because the owner's personal assets may be at risk.
What is unlimited personal liability?
Explanation: The owner may personally be responsible for the debts of the business.
Giving managers stock options can reduce agency problems because it helps do this.
What is align managers' interests with shareholders' interests?
Explanation: Managers benefit when shareholder value increases, giving them an incentive to make decisions that benefit owners.
An IPO occurs in this type of financial market.
What is the Primary Market?
Explanation: An IPO involves stock being sold to investors for the first time.
The main financial goal of a corporation is to maximize this rather than simply maximizing profits.
What is shareholder value?
Explanation: Financial managers should make decisions that increase the value of the company for its shareholders.
A company deciding whether it should open a new location is making this type of financial decision.
What is Capital Budgeting?
Explanation: Opening a location is a major long-term investment decision.
This organization combines limited liability with single taxation.
What is an LLC?
Explanation: An LLC combines characteristics of corporations and partnerships.
Passed in 2002 after accounting scandals such as Enron, this law requires CEOs and CFOs to sign off on financial reports.
What is the Sarbanes-Oxley Act?
Explanation: SOX increased corporate accountability and made financial fraud more difficult.
According to the chapter, NASDAQ is an example of this type of secondary market.
What is a Dealer Market?
Explanation: The book describe NASDAQ as an electronic dealer or OTC market.
Corporate Finance, Investments, Financial Institutions, International Finance, and this make up the five major areas of finance discussed in the chapter.
What is Fintech?
Explanation: Fintech is the fifth major area listed in the Chapter 1 slides.
A company already chose a new project but now must decide whether to issue debt or stock to pay for it. This is the financial decision being made.
What is Capital Structure?
Explanation: The company has already selected the investment. Now it is deciding how to finance it.
In a corporation, stockholders elect this group, which then selects the company's managers.
What is the Board of Directors?
Explanation: Shareholders elect directors, and the directors oversee and select management.
A manager spends company money on expensive personal perks that provide little benefit to shareholders. This is an example of this problem.
What is an agency problem?
Explanation: The manager is acting in their own interest instead of maximizing value for the owners.
A corporation sells newly issued bonds directly to investors. This transaction occurs in this market.
What is the Primary Market?
Explanation: Because the securities are newly issued and the company receives the money, it is a primary-market transaction.