Chapters 1 and 2 Questions Chapter 1 Question 1.1, 1.3, 1.5, 1.8 (1.1) Define each of the following terms a. Proprietorship; partnership; corporation Proprietorship- a business owned by one individual. Partnership- A partnership exists when two or more persons associate to conduct a business. Corporation- A Corporation is a legal entity created by a state. The corporation is separate and distinct from its owners and managers. b. Limited partnership; limited liability partnership; professional corporation Limited partnership- a limited liability partnership (LLP), sometimes called a limited liability company (LLC), combines the limited liability advantage of a corporation with the tax advantages of a partnership. Limited liability partnership - a partnerships in which limited partners have unlimited liability and control. Partnership- a partnership exists when two or more persons associate to conduct a business. Professional Corporation- (PC) – has most of the benefits of incorporation but the participants are not relieved of professional (malpractice) liability, known in some states as a professional association. c. Stockholder wealth maximization The primary goal of financial managers. They maximize the wealth of the firm's shareholders through achieving the highest possible value for the firm. d. Money Market; Capital Market; Primary Market; Secondary Market Money market- a financial market for debt securities with maturities of less than 1 year (short term) The New York money markets is the world’s largest. Capital Market- capital market are the financial markets for long term debt and corporate stocks. Primary market- markets in which newly issued securities are sold for the first time.
C#apter 3 .rolem 3'8/ 3'10
3'8 ) (.rot ar2in an$ et 4atio
Assume &ou are gie" the *ollowi"g relatio"ships *or the 6la&to" 6orporatio": <ales/totalassets .5 =etur" o" assets 8=>A9 32 =etur" o" e?uit& 8=>'9 52 6alculate 6la&to";s pro!t margi" a"d debt ratio.
3'10 ) (,imes'interest'earne$ ratio
The a"or 6orporatio" has 500000 o* debt outsta"di"g a"d it pa&s a" i"terest rate o* 02 a""uall&: a"or;s a""ual sales are millio" its aerage ta# rate is 302 a"d its "et pro!t margi" o" sales is 52. (* the compa"& does "ot mai"tai" a T(' ratio o* at least 5 to the" its ba"k will re*use to re"ew the loa" a"d ba"kruptc& will result. hat is a"or;s T(' ratio
C#apter 1& .rolem 1&1 1&'
1&1 ) (AF6 E7uation
%a#ter @ideo $roduct;s sales are e#pected to i"crease b& 02 *rom 5 millio" i" 00 to7 millio" i" 0. (ts assets totaled 3 millio" at the e"d o* 00. %a#ter is alread& at *ull capacit& so its assets must grow at the same rate as proected sales. At the e"d o*