1. Chapter 1

2. Goal of the Firm 1) Profit Maximization? this goal ignores: a) TIMING of Returns (Time Value of Money - Ch.5) b) UNCERTAINTY of Returns (Risk - Ch. 6)

3. Goal of the Firm 2) Shareholder Wealth Maximization? this is the same as: a) Maximizing Firm Value b) Maximizing Stock Price

4. Legal Forms of Business 1) Sole Proprietorship n A business owned by a single individual. n Owner maintains title to the firm’s assets. n Owner has unlimited liability. 2) Partnership n Similar to a sole proprietorship, except that there are two or more owners.

5. Legal Forms of Business 2a) General Partnership n All partners have unlimited liability. 2b) Limited Partnership n Consists of one or more general partners, who have unlimited liability, and n One or more limited partners (investors) whose liability is limited to the amount of their investment in the business.

6. Legal Forms of Business 3) Corporation n A business entity that legally functions separate and apart from its owners. n Owners’ liability is limited to the amount of their investment in the firm. n Owners hold common stock certificates, and ownership can be transferred by selling the certificates.

7. Financial Management Principles n 1) Risk - return trade-off n 2) Time value of money n 3) Cash is king n 4) Incremental cash flows count n 5) It’s hard to find really profitable projects n 6) Efficient capital markets n 7) The agency problem n 8) Taxes bias business decisions n 9) All risk is not equal n 10) Ethical dilemmas are everywhere in finance