Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Corporate Finance
| Question | Answer |
|---|---|
| What are the 3 major aspects of Corporate Finance? | Investment decisions, Financing decisions and Liquidity management |
| Overriding aim of financial management? | Maximising the firm's value (as well as Triple Bottom Line) |
| Four types of firms? | Sole trader, Partnership, Private Limited Companies, Public Limited Companies |
| Advantages of sole trader? | Easy to start, taxed at personal tax rate, independent decision making |
| Disadvantages of sole trader? | Unlimited liability, life of business limited to owner's life |
| Advantages of partnership? | Easy to start, taxed at personal rate, access to funds from multiple sources/partners |
| Disadvantages of partnership? | Partners share unlimited liability, partnership ends with death/withdrawal of any single partner, difficult to raise cash |
| Advantages of a corporation (PLC and LTD)? | Limited liability, unlimited life, separate ownership/management, easy to transfer ownership, easy to raise capital |
| Disadvantages of a corporation (PLC and LTD)? | Separate ownership/management, greater regulation, double taxation on dividends |
| Explain the double taxation issue with corporations | Profit is originally taxed at the corporation tax rate, then the dividend received by shareholders are then taxed at a further amount, meaning they're taxed twice |
| Who is a financial manager? | Anyone responsible for significant investment or financing decisions |
| What 2 elements make up the capital structure of a firm, and are the 2 factors in determining firm value? | Debt and Equity |
| Define shareholder wealth | Dividend yield + Capital gain/loss |
| Define the principal-agent relationship | Principals hire agents to run the company (e.g. shareholders hire managers) |
| What is the type 1 agency problem? | Relationship between the shareholders and the management, managers may not always act in the interests of shareholders |
| What is the type 2 agency problem? | Relationship between a dominant shareholder and other smaller shareholders, exists in a concentrated ownership structure |
| Define agency costs | Costs of monitoring the actions taken by the agent in an effort to mitigate the agency problem |
| Give an example of the Type 1 agency problem | Managers may favour growth of the firm in order for greater job security and large compensation even if not favouring shareholder interests. Managers may also prefer low-risk projects to riskier ones with a higher NPV |
| Give an example of the Type 2 agency problem | Investors with a large percentage of a company's shares can make firm's objectives aligned to their own personal objectives, but not those of smaller shareholders. |
| What ways can be used to reduce agency problem? | Monitoring (reviewing actions of managers), Incentives (Such as compensation plans, performance based bonuses, to maximise shareholder value). Mitigated by good systems of corporate governance. |
| Define corporate governance | System of rules/practices to ensure that businesses are well operated |
| Describe the difference between a unitary and two-tier board structure | Unitary mean board reports to shareholders (shareholders elect directors at AGM), Two-tier mean board reports to a supervisory board (supervisory board elects directors) |
| State the responsibilities of the board of directors | Set vision/strategy, ensure independent and ethical governance, oversee and evaluate management, monitor performance/risk/finances, protect stakeholder interests |
| What are the purposes of financial markets? | Match firms' financing needs with investors' capital |
| What's traded on a primary market? | New issues (e.g. IPOs) |
| What's traded on a secondary market? | Existing securities |
| What's traded on a money market? | Short term financing below 1 year (e.g. treasury bills) |
| What's traded on capital markets? | Long term financing, such as bonds, shares and long term loans |
| What are financial markets (FinTech)? | Individual investors globally lending to borrowers via online platforms |
| Advantages of financial markets | No brokers/middlemen, low transaction costs, enable small/medium sized firms to borrow easily |
| Disadvantages of financial markets | Risky for investors as they must research firms themselves, interest rates high due to higher risk, smaller loan amounts and generally shorter periods |
| What is the process involved in a dealer market? | Trader A sells to dealer (e.g. £100), dealer then sells to Trader B (e.g. £110) |
| What is the process involved in an agency market? | Trader A hires agent to sell shares, agent then sells to Trader B (taking a commission e.g. 10%) |
| Describe the process of cumulative voting | No. votes = No. shares x No. directors |
| Benefit of cumulative voting? | This facilitates more minority participants |
| Describe the process of staggered voting | Directors are elected one at a time, and each share is equal to one vote |
| Benefit to staggered voting? | Takeover attempts are less likely to succeed |
| Drawback to staggered voting? | Difficult for minority to have a say in voting |
| What are the 4 types of world ownership structures? | Widely-held, family, state and private |
| What is the widely-held ownership structure? | No single investor has a large ownership stake |
| What is the family ownership structure? | Majority owners comprise of a family |
| What is state ownership structure? | Government ownership |
| What is the private ownership structure?:) | Venture capitalists, individiuals etc |
| Where is the Type 2 agency problem more likely to occur? | In closely held firms |
| What are the main investor types in UK/US? | Widely-held |
| What are the main investor types in Europe/Asia? | Closely-held - state/private/family |
Created by:
deleted user