Applied Finance Final 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 in 2.Track money going out (spent) 3.Find the balance. Are you making more than you’re spending, or vice versa? 4.Set budget 5.Review regularly

Lesson 7: Financial Strategies How do you make a personal budget? What are the steps? 1.Track money coming in 2.Track money going out (spent) 3.Find the balance. Are you making more than you’re spending, or vice versa? 4.Set budget 5.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?