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Ch. 6
Business-Investment Sector
| Term | Definition |
|---|---|
| Positives of Proprietorship (2) | 1) Fewer legal complications 2) taxed only once (only pays personal income) |
| Negatives of Proprietorship (3) | 1) Burden of running company alone 2) Owner may be sued for everything she has if business is sued 3) A lot harder to raise capital |
| Positives of Partnership (2) | 1) Raise more capital 2) Divide the work and responsibility |
| Negatives of Partnership (2) | 1) The partnership must be dissolved when one dies or wants to leave the business. 2) unlimited liability- owners are personally liable to pay |
| Positives of Corporation (3) | 1) Limited liability- you can only loose as much as you invested 2) Potentially perpetual life- the stock owned by the principal who wants to pull out is purchased by someone else 3)Pay lower personal tax |
| Negatives of Corporation (2) | 1) You have to have papers drawn up and pay a fee for a charter 2) Have to pay federal and possibly state corporate income tax |
| Stockholders | Owners of a corporation |
| Bondholders | Lend money to a company and are therefore creditors rather than owners |
| Corporate stock, the two types | -share in a corporation. 1)Common-stockholders vote on issues 2)Preferred- receive stipulated dividen (like bondholders) whether or not co. makes profit |
| Corporate bonds | the debts of the corporation |
| Capitalization | consists of the total value of a corporation's stocks and bonds (a corporation's total capital). Ex. $200 bonds+$100 Preferred stock+$300Common Stock=Capitalized out $600 |
| What percent of common stock do you need to be able to control the corporation? | 5% |
| Market Capitalization | Found by multiplying a company's common stock price by the number of outstanding shares. |
| A mega cap company has how much market capitalization? | More than $100 billion |
| Investment | The purchase or construction of any new plant, equipment, or residential housing, or the accumulation of inventory (plants such as factories, office buildings, shopping malls) |
| Inventory Investment | Changes in the stocks of finished goods and raw materials that firms keep in reserve to meet orders (The net change from Jan1 to Dec31 of level of Inventory) |
| Human Capital | The accumulation of knowledge and skills that make a worker productive (like college education) |
| Two types of investment..The purchase of.. | 1)New plant, equipment, and residential housing 2)Additional inventory |
| 4 Determinants of the Level of Investment | 1)The sales outlook 2)Capacity Utilization Rate 3)Interest Rate 4)The expected Rate of profit |
| Capacity Utilization Rate | The % of plant and equipment that is actually being used at any given time. (The lower the rate, the less equipment is being used). You won't invest if you have a lot of unused capacity |
| The expected rate of profit | expected profits divided by money investment (AKA marginal efficiency). You won't invest unless the expected profit rate is high enough. |
Created by:
ltameirao
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