FIN 300 Final Exam Study Guide

LectureFIN 300 Final Exam Study Guide 1: Course Introduction Finance – The science of managing money matter (Webster) Three areas of Finance ◊ Managerial Finance: concerned with the financial management of a firm  Buying/selling assets  Financing choices  Control cost ◊ Investing: concerned with purchasing & holding assets and securities  Stocks  Bonds ◊ Financial Markets  Monet market – places where short-term securities are traded  Capital market – long-term money  Financial intermediaries – banks and our credit unions Major Principles of Finance ◊ Risk – return tradeoff  The higher the risk, the higher the return you require ◊ Time Value of Money  Present value ◊◊◊◊◊◊◊◊Business◊◊◊Cash is King (not profits)  The company has to have cash, or at least, access to cash  Not always concerned with profits, concerned with having cash or good cash flow Incremental cash flow  The change or improvement in cash flows Competitive Markets  The way we do business is efficient because of competition Efficient Capital Markets  Information spreads quickly and its reflected in the stock price Agency issue  Who do managers really work for? Tax impact  Investment decisions should be viewed after tax Diversification  Safety with diversification Ethics  Be ethical in our decisions and our actions Organization Set-up Sole Proprietorship – one person  Taxation: personal taxes – paid once  Liability: on the sole proprietor  Raising capital: more difficult time  Selling: accept an offer from someone else  Continuity: to change it to some type of a limited liability or corporation, or even a sub chapter General Partnership – two or more general partners  Taxation: don't pay taxes themselves, tax consequences are given to their partners  Liability: responsible for the actions of others  Raising capital: easier to raise money than just having one person  Selling: more of a challenge Limited Partnership  Taxation: don't pay taxes themselves, tax consequences are given to their partners