Activities of Production and Sale of a Commodity or of Commodities
A firm is an entity that organizes activities of production and sale of a commodity or of commodities.
2) An asset is a possession that has an economic value to its owner.
3) An acquisition of an asset is known as an investment decision.
4) An asset whose economic life normally extends beyond one year is known as a fixed asset or a long-term asset.
5) An asset whose useful life is normally equal or less than one year is known as a short-term asset or a current asset.
6) An asset whose value is derived from its physical properties is known as a tangible asset; otherwise it will be an intangible asset.
7) The usual current assets are: cash, marketable securities, accounts receivable and inventories.
8) An asset that directly assists or is used in production and/or in sale, or is directly consumed, is known as a real asset.
9) A document that provides a claim on cash flow(s) in the future is known as a financial asset.
10 Raising funds or money by taken loans and/or issuing financial securities is known as the financing decision.
11 Financial securities can be divided into: (a) debt, (b) equity and (c) the hybrid of debt and equity.
12) A debt security is one that involves the legal obligation of the issuer to make the stated future payment(s) over a given period.
13) A bond is a long-term security that provides its buyer a legal claim on specified cash flow(s) over a stated future time period
14) A corporate bond that is not secured by pledging any asset(s) to the bondholders is known as a debenture.
15) If the term of a debt contract is normally equal or less than one year, it is known as the short-term debt or a current liability, and if the term of a debt security is longer than one year is known as the long-term debt.
16) An equity security is a corporate security that entitles its buyer the ownership right on firm’s assets and a pro-rata share of declared dividends.
17) A preferred stock is a corporate security that entitles its buyer fixed or adjustable dividends per share periodically into indefinite future.
18) The choice of mixture of debt and equity securities is known as the capital structure problem.
19) The cost of raising a dollar of funds over a period from debt and/or equity is known as the cost of capital.
20) Using notation given in the class, some key balance sheet accounting relationships are:
i) NWC = CA – CL
ii) E = TA – Total debt
21) Net cash flow during given period t = NCFt = cash inflowt – cash outflowt.
22) The analytical dimensions of corporate cash flows involve: (i) time, and (ii) risk.
23) Uncertainty of the future cash flows of an asset is known as its risk.
24) Acquisitions of long-term real asset(s) make up topics of capital budgeting and mergers and takeovers.
25) Acquisitions of short-term assets are referred to as working capital decisions.
26) A corporation whose common shares are not held by public at large, rather they are held by a family or a few individuals, is known as a private corporation.
27) A public corporation is one whose common shares are publicly held.
28) Common shareholders’ wealth at a given time t in a public corporation is: Wt = Pt x Nt, where Pt stands for price per share of the common stock at time t and Nt stands for number of common shares at time t.
29) When a business