Essay

Before a company can invest in an asset, it must obtain financing, which means that it must raise the money to pay for the investment.

long assets should the firm invest-capital budgeting to describe the process of making and managing expenditures on long-lived assets.(R) firm raise cash for required capital expenditures-capital structure, represents the proportions of the firm’s financing from current and long-term debt and equity.(L) short-term operating cash flows be managed-Net working capital is defined as current assets minus current liabilities.

Type of firm: sole proprietorship owned by one person. – 1 unlimited liability 2 the life of the sole proprietorship is limited by the life of the sole proprietor. 3 equity money that can be raised by the sole proprietor is limited to the proprietor’s personal wealth. Partnership-two or more people can get together-(1) general partnerships -unlimited liability for all debts ; difficult for a partnership to transfer ownership without dissolving. (2) limited partnerships-limited to the contribution each has made to the partnership; sell their interest in a business.. Corporation- acquire and exchange property; 1.limited liability-enhanced ability to raise cash. 2.Separation of claims on cash flow and control 3 life of the firm may extend “theoretically” forever; transfer ownship interests; establish a single contracting entity; Goal: max current value(per share) of existing stock. Complicated proposition- firm; incentives and value preposition of all stakeholders matter; everything must be incentive compactable; Disadvantage: double taxation for shareholders

Accounting –sales-costs=profit;Finance: cash inflow-cash outflow(actually receives of money, if not pay yet, cash inflow is 0) FV = PV(1 + r)t

The law of one price: two things are identical should have the same price. Always compounding interest rate except step out. r = (FV /...