The Mid-Term Exam

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The Mid-Term Exam. WHAT IT ISN’T : Not Bluebook, Scantron , Lap-top, Open-Book or Open-Note WHAT IT IS : Emphasizes Terminology and Applying Themes. The Mid-Term Exam. Bring several Pens or Pencils. Earn all the Points on Essay Questions Clearly State Answer (Thesis) Explain Answer - PowerPoint PPT Presentation

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The Mid-Term Exam

The Mid-Term ExamWHAT IT ISNT: Not Bluebook, Scantron, Lap-top, Open-Book or Open-NoteWHAT IT IS: Emphasizes Terminology and Applying ThemesEarn all the Points on Essay QuestionsClearly State Answer (Thesis)Explain AnswerWhy did you write what you wrote?Dont repeat QuestionThe Mid-Term ExamBring several Pens or PencilsThree Organizational FormsTHREE BASIC FORMS OF BUSINESS ORGANIZATIONS CorporationLegislatively Created and Regulated Governance, Ownership and Financial StructureWhich Form Best Fits the Needs of your Business?Sole ProprietorshipAny Business Owned and Operated by an IndividualGeneral PartnershipTwo or More Persons Operating a Business for a ProfitDeterminants of Organizational FormOwners Objectives: Control, Liability, Capital Needs, Distribution of Profits (Losses) and TaxesDealings with Outside World: Other Owners, Employees, Suppliers, Customers and Future OwnersLegislative Goals: Special-Purpose Entities subsidize Social ObjectiveTHE AGENCY PROBLEMCorporate Shareholders(Principal)Investor: Maximum Returns(High-Risk/High-Return)Cannot operate BusinessLiability is Limited: Can Lose only Investment Occurs when (1) Goals of Principal (Owner) and Agent (Employee) Conflict and (2) Principal cannot Verify what Agent is doingCorporate Management(Agent)Manager: Stable Returns (Low-Risk/Low-Return)Can operate Business Unlimited Liability: Lose Job and Income7

Whos responsible for Managing a Corporation?What Do you get with Common Stock and Do Not get with Preferred Stock?Limited Liability and Double TaxationInflationConsumer Price IndexesWho Benefits and Who Loses?Unemployment/Employment RateJob Growth (Demand) vs. Labor Force (Supply)Always a Bad Thing?Gross Domestic Product (GDP)National, Regional and LocalInterest RatesLeading IndicatorPrincipal Tool of Monetary PolicySatisfy 10% Reserve Requirement Every Day for Two Weeks of Every Month9

Shortage creates Market for Needed ReservesOvernight Loans of Federal Reserve FundsFOMC tradesGovernment Securities to INFLUENCEFed Funds RateDEMANDElastic or Inelastic?

Elastic Demand: Quantity Demanded is Highly Responsive to Price Changes (Flatter Curve)Inelastic Demand: Quantity Demanded not as Responsive to Price Changes (Steeper Curve)Firm hasCOMPETITIVE ADVANTAGEWhenCompetitors cannot Duplicate Value-creating Processes of its Product and Market PositionMeaningful Product DifferentiationTargeting Under-served Market SegmentEffective Distribution Channel Essential Accounting ReportsBalance SheetIncome StatementStatement of Cash FlowsTHREE ESSENTIAL METRICSCurrent RatioDebt-to-Equity RatioReturn-on-Equity RatioCAPITAL STRUCTURE SOURCESINTERNAL

EXTERNALDebt: Loan or BondSource: Commercial Bank

Stock: Preferred or CommonSource: Investment BankRetained Earnings

Trade TermsRECONCILE SOURCES/USES OF CASHOperating Needs Timing and AmountsCapital NeedsGrowth and ContractionIMPLICATIONSOperations Debt Claims on Cash Flow/AssetsGovernance Common Stockholders Rights