• Proprietorship – Unincorporated business owned by one person
o Ease of formation
o Subject to few government regulations
o No corporate income taxes – taxed as personal income
o Unlimited personal liability – ouch!
o Limited life – When sold, it becomes “new”
o Transferring ownership is difficult
o Difficult to raise capital – Can’t issue stock
• Partnership - Same as Proprietorship, but owned by more than one person. A/K/A “General Partnership” (basically same limitations/advantages
• Corporation - Legal entity created by statute
o Unlimited life – it is a legal entity unto itself
o Easy transfer of ownership – Sell or buy stock
o Limited liability – Employees not personally liable
o Ease of raising capital – Issue Stock
o Cost of set-up and report filing
o Double taxation (Let’s discuss what this means!)
Question on Beta, scenario – whats the reasonable estimate. Beta is the risk of an investment. Beta for market is set at 1. The lower above one, the less it moves with market.
Interest rates go up and down, what makes the highest PV or FV, based on compounding monthly? Annuality?
• Ordinary Annuity
• Annuity Due – “Begin”
• Perpetuity – CF-enter flows-NPV-I=?-Computer
Calculate FV and PV, with semi annual/annual/etc.
• Debenture – An unsecured
• Indenture - A formal agreement between the issuer of a bond and the bondholders
• Trustee - An official who ensures that the bondholders’ interests are protected and the terms of the indenture are carried out
• Restrictive Covenant - a provision in a debt contract that constrains the actions of the borrower
• Callable Bond- bond that only pays interest if the firm has sufficient earnings to cover the interest payments
• Convertible Bond - Permits the bondholder to convert the bond into shares of common stock at a fixed price. Investors cannot convert the stocks back to bonds
• Putable Bond -...