Download - 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
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Earn all the Points on Essay Questions
Clearly State Answer (Thesis) Explain Answer Why did you write what you wrote? Don’t repeat Question
The Mid-Term Exam
Bring several Pens or Pencils
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Three Organizational
Forms
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THREE BASIC FORMS OF BUSINESS ORGANIZATIONS
Corporation
Legislatively Created and Regulated Governance,
Ownership and Financial Structure
Which Form Best Fits the Needs of your Business?
Sole Proprietorshi
p
Any Business Owned and
Operated by an Individual
General Partnership
Two or More Persons Operating
a Business for a Profit
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Determinants of Organizational Form
Owner’s Objectives: Control, Liability, Capital Needs, Distribution of Profits (Losses) and Taxes
Dealings with Outside World: Other Owners, Employees, Suppliers, Customers and Future Owners
Legislative Goals: Special-Purpose Entities subsidize Social Objective
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THE AGENCY PROBLEM
Corporate Shareholders(Principal)
Investor: Maximum Returns
(High-Risk/High-Return)
Cannot operate Business
Liability 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 doing
Corporate Management(Agent)
Manager: Stable Returns (Low-Risk/Low-Return)
Can operate Business
Unlimited Liability: Lose Job and Income
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7
Who’s responsible for Managing a Corporation?
What Do you get with Common Stock and Do Not get with Preferred
Stock?‘Limited Liability’ and ‘Double
Taxation’
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INFLATION
Consumer Price IndexesWho Benefits and Who Loses?
UNEMPLOYMENT/EMPLOYMENT RATE
Job Growth (Demand) vs. Labor Force (Supply)Always a ‘Bad Thing?’
GROSS DOMESTIC PRODUCT (GDP)
National, Regional and Local
INTEREST RATES
Leading IndicatorPrincipal Tool of Monetary Policy
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Satisfy 10% Reserve
Requirement Every Day for Two
Weeks of Every Month
9
Shortage creates Market for Needed Reserves
Overnight Loans of Federal Reserve Funds
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FOMC tradesGovernment Securities to
INFLUENCEFed Funds Rate
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DEMANDElastic 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)
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Firm hasCOMPETITIVE ADVANTAGEWhen…
Competitors cannot Duplicate Value-
creating Processes of its Product and Market Position
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Meaningful Product DifferentiationTargeting Under-served Market
SegmentEffective Distribution Channel
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Essential Accounting Reports
Balance Sheet
Income Statement
Statement of Cash Flows
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THREE ESSENTIAL METRICS
Current Ratio Debt-to-Equity Ratio Return-on-Equity Ratio
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CAPITAL STRUCTURE
SOURCES
INTERNAL
EXTERNAL
Debt: Loan or Bond
Source: Commercial Bank
Stock: Preferred or
CommonSource: Investment
Bank
Retained Earnings Trade Terms
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RECONCILE SOURCES/USES OF CASHOPERATING NEEDS Timing and Amounts
CAPITAL NEEDS Growth and Contraction
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IMPLICATIONSOPERATIONS Debt Claims on Cash Flow/Assets
GOVERNANCE Common Stockholders’ Rights
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