Revised Corporate Finance Exam Guide [100% Correct Answers]

Revised Corporate Finance Exam Guide [100% Correct Answers] sole proprietorship *Ans* 1 owner, owner receives all the profits, unlimited liab., 2 parts: 1. initial investment and 2. personal wealth. Taxed based on personal income. Transfer of ownership is hard. Must be willing to buy all assets. partnership *Ans* 2 or more owners. profit is based on % invested shared. Unlimited liab. between owners. Tax based on personal income. hard to transfer ownership. limited partnership *Ans* same characteristics as partnership. Only looses money initially invested by partner. Some protection. Tax based on personal income. Life of owners for co. life. corporations *Ans* "legal person". distinct from the owners. Owners- several, profit split among all owners. Liab. limited for shareholders. Double taxation(corp & owners). transfer of ownership easy. Life is unlimited as long as shares still trading on the market. Financing is easy s corporation *Ans* subchapter status- different taxation- passes all taxes to owner if they meet criteria. (100 owners)...(taxed like sole proprietorship) c corporation *Ans* standard corporation LLC *Ans* hybrid of partnership and corporation. LLC=XX corporation. operates like partnership w/ looks similar to corp. goal of financial management *Ans* maximize the current value per share of the existing stocks (shareholder's wealth). If no stocks, it's to maximize market value of existing owner's equity sarbanes oxley requirement *Ans* 1. each co's annual report must have an assessment of the companies internal control structure 2. top managers must review & sign the reports Agency Cost problem *Ans* Shareholders(principal) Managers(agents) 2 agency costs *Ans* direct( monitoring, bonding, etc) indirect(underinvestment, loss) Agency cost of equity *Ans* conflict of equity holders vs. managers. Managers spending investors money. Shareholders view on what managers will use money for. Residual loss(money lost for jets, etc