the goal of a business should be
maximization of owners wealth
under current tax laws the lowest marginal tax rate for both individual and corporation is
15 %
For corporations the principal against relationship usually refers to the relationship between
owners and managers
which of the following is not considered to be one of the three major forms of business
public limited company
which one of the following alternatives is commonly used to reduce agency problems as they relate to corporate control
stock options
Generally accepted accounting principles are formulated by the
financial accounting standards board
which one of the following financial statements conveys a relationship of equality between assets and liabilities plus owners equity
Balance sheet
under which of the following business organizations do the owners have unlimited liability for all the debts of the firms
sole proprietorship
the average tax rate on a corporation with 75,000 in income and tax liability of 15,000 is
20%
of the following forms of organization which businesses are the greatest in numbers
a proprietorship
of the following forms of business organization which have stockholders with limited liability
corporations
of the following forms of business organizations which have the advantage of limited liability
limited partnership
under which of the following business organizations do the owners have unlimited liability
proprietors and partnership
the most important form of short term business financing is
trade credit
a limited partnership is comprised of
both general and limited partners
working capital does not include
property, plant and equipment
deposits placed in foreign banks that remain denominated in the u.s. dollars are called
Eurodollars
which of the following is not considered to be one of the five C's of credit analysis
caution
commercial finance companies obtain loanable funds
through both long term and short term financing
the small business administration
lends to business with reasonable prospects of repayment but which cannot obtain
the bank line of credit is
the loan limit that a bank had established for a business customer
a revolving credit agreement is a
bankers stand by agreement to provide a guaranteed line of credit for a specified period of time
a business that needs short term credit in excess of its regular line of bank credit may
pledge accounts receivables as specific collateral for additional loans
when a bank takes a business inventory as collateral for additional loans it
usually establishes a field warehouse
for most fields of business the basic source of short term loan financing is
commercial banks
if total assets are 100,000 fixed assets are 30,000 current liabilities are 20,000 the net working capital is
50,000
if life insurance is pledges as collateral for a loan how much can be borrowed
cash surrender value of the policy
a survey of financial managers found they spend nearly what percent of their time dealing with financial planning budgeting and working capital issues
70%
which of the following asset accounts is not part of a firms working capital
fixed assets
which of the following types of ratios indicate the ability to meet short term obligations to creditors as they come due
liquidity ratios
if a firm actually sells its accounts receivable the process is known as
factoring
which of the following is a private firm that operates as a credit reporting agency
Dun & Bradstreet
Proprietors and partners
Have unlimited liability and are liable for all the debts of their business, their personal assets can be attached if needed to satisfy the business obligation.
Corporate
owners who are shareholders have limited liability. the most they can lose is the funds they have invested in the firm.
credit analysis
involves appraising the credit worthiness or quality of a potential customer. it answers the question, should credit be changed or granted? the decision is made on the basis of the applicants characters, capacity, capital, collateral and conditions
the five C's of credit analysis
1.Character is ethical quality upon which one can base a judgment about a customers willingness to pay bills.
2.Capacity the ability to pay bills.
3.Capital adequacy of owner equity relative to existing liabilities.
4.Collateral is whether assets are avai
sole proprietorship
business venture that is owned by a single individual who personally receives all profits and assumes all responsibility for the debts and losses of the business.
Advantages of a sole proprietorship
1. distribution and use of profits
2. control of the business
3. Government regulation
4.Closing the business
5. Secrecy
Disadvantages of a sole proprietorship
1. unlimited liability
2.limited resources
3. existence of the business
4.limited management
5.Qualified employees.
Partnerships
an association of two or more persons who carry on as co-owners of a business for a profit.
Advantages of a Partnership
1. Ease of formation
2. better credit rating
3.Specialization
4. Decision making
5. Regulatory controls
Disadvantages of a Partnership
1.Unlimited liability
2.Business responsibility
3.Life of the partnership
4.Limited sources of funds
5.Distribution of funds
Corporations
a legal entity created by the state with assets and liabilities separate from those of the owners of the corporation. profits are distributed to the shareholders in the form of dividends.
Advantages of a Corporation
1. limited liability
2.transfer of ownership
3.external sources of funds
4.expansion potential
5.perpetual life
disadvantages of a Corporation
1.double taxation
2.legal requirement and regulatory red tape
3.cost and time involved in the incorporation
4.disclosure of information
5.employee-owner separation
Small business administration
Created in 1953 provides variety of services in addition to loan guarantees.
How does the Small business administration provide financing to small business?
Small business administration provides financing to firms unable to obtain loans through private channels .SBA assists in 3 different ways
1. makes direct loans to business
2. participate jointly with private banks in extending loans to business