Chapter 1:
• Proprietorship – Unincorporated business owned by one person
o Advantages:
o Ease of formation
o Subject to few government regulations
o No corporate income taxes – taxed as personal income
o Limitations:
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 Advantages:
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 Disadvantages:
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.
Chapter 4
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 -...