Applied Finance Applied Finance Final Exam Review Final Exam Review
Dec 26, 2015
Applied FinanceApplied FinanceApplied FinanceApplied Finance
Final Exam ReviewFinal Exam Review
Taxonomy• What is a taxonomy?
Business Lifecycle• Brainstorm steps:
– Startup– Growth– Maturity– Decline– Cessation
Capital• What is it?
• Any form of wealth that can be used to create more wealth, such as cash, which can be invested to generate more income.
Ways to raise capital• Loan from bank
• Private investors• Venture Capital Firms
• Stocks
• Bonds
• Sell equipment or property• Liquidation
Types of Business• What are they?
• Sole Proprietorship• Partnership• Corporation• Limited Liability Company
Corporation
Disadvantages:• Legally complex to start and operate• One of the two most regulated business
forms • Profits are taxed twice - once as corporation
income, and again as investor income
Disadvantages:• The owner is personally
responsible for all actions of the business
• The owner is personally liable for all business debts
Sole proprietorship
General partnership
Disadvantages:• All partners are responsible for any actions
taken in the name of the business by all other partners
• All business debts are the personal responsibility of the partners
Sole proprietorship
Advantages:• Simple and inexpensive to create and
operate• Least regulated of all business forms• All profits are reported on the owner’s
personal income tax return
Limited liability company (LLC)
Characteristics:
Treated as an individual for purposes of ownership and legal standing, but it is not taxed at the higher corporate rates
Corporation
Characteristics:• In the eyes of the law, is
treated like an individual: • It can own property• It can be sued• It must file a tax return
Corporation
Advantages:• Owners are not responsible for the
actions taken by the business• Debts are not the responsibility of the
owners (limited liability)• The business can sell shares (stock) in
the business to the public in order to raise capital
LLC
• Can choose to be taxed as the property of the owners (like a partnership) or an individual (like a corporation)
General partnership
Advantages:• Simple and inexpensive to
create and operate• All profits are taxed as personal
income to the partners
LLC
Disadvantages:• Governed by complex laws• The owners normally can’t be
employees• When a partner dies, the
business entity is dissolved
Corporation
Characteristics:• Can hire
employees, which may include the owners
Lesson 3 – Product or Service Development
Cycle• See poster…
Lesson 3 – Product or Service Development
Cycle• See poster…
Which is more expensive?
• Shipping inputs and products a long distance or
• Obtaining goods and services locally?
Which is more expensive?
• Shipping inputs and products a long distance or
• Obtaining goods and services locally?
Profit Margin• How is it calculated?
• Profit divided by revenue
What is a monetary guarantee that a financial obligation will be fulfilled?
a) Surety Bond
b) Worker’s Compensation
c) Speculative Risk
d) Product liability insurance
What insurance protects a company from lawsuits if someone is injured by the
company’s products?
a) Surety Bond
b) Speculative Risk
c) Worker’s Compensation
d) Product liability insurance
What is a situation where there is a chance of either
loss or no loss, but not chance of gain?
a) Surety Bond
b) Pure risk
c) Risk Mitigation
d) Insurance premium
Fact
• Only pure risks are insurable; otherwise insurance is akin to gambling.
What insurance protects a business from lawsuits
a) Risk mitigation
b) Theft insurance
c) General liability insurance
d) Quality assurance
What insurance protects a company in the event that an employee is seriously
injured on the job?
Worker’s compensation insurance
This insurance is required in most
states.
What insurance protects a company in the event that an employee is seriously
injured on the job?
Worker’s compensation insurance
This insurance is required in most
states.
Lesson 6: Financial Record-keeping and Analysis
Which document is sent to
shareholders at the end of every
year? These are required by the
SEC for corporations.
Lesson 6: Financial Record-keeping and Analysis
What is a measure of a company’s
earnings before income and
taxes?
Lesson 6: Financial Record-keeping and Analysis
Which financial statement is a
summary of a firm’s assets,
liabilities, and owner’s equity on a
certain date?
Lesson 6: Financial Record-keeping and Analysis
What is a document describing a
company’s incoming and
outgoing money?
Lesson 6: Financial Record-keeping and Analysis
What is another word for net
income?
Lesson 6: Financial Record-keeping and Analysis
What is another word for net
income?
Lesson 7: Financial Strategies
How do you make a personal
budget? What are the steps?1.Track money coming in2.Track money going out (spent)3.Find the balance. Are you making
more than you’re spending, or vice versa?
4.Set budget5.Review regularly
Lesson 7: Financial Strategies
How do you make a personal
budget? What are the steps?1.Track money coming in2.Track money going out (spent)3.Find the balance. Are you making
more than you’re spending, or vice versa?
4.Set budget5.Review regularly
Lesson 7: Financial Strategies
Which analysis involves tracking moving averages
and looking for trends & cyclical variations?
Lesson 7: Financial Strategies
Which analysis assesses opinions through
consumer panels, focus groups and in-house
judgements?
Lesson 7: Financial Strategies
What is extrapolation?