-Pro.&Partner: Advantage(Ease of formation, subject to few regulations, no corporate income taxes).

Disadvantage(Difficult to raise capital, unlimited liability, limited life). -Corp.:Advantage(Unlimited life, easy transfer of ownership, limited liability, ease of raising capital). Disadvantage(double taxation, cost of setup and report filing). -The primary financial goal of a corporation is shareholder wealth maximization, which translates to maximizing stock price. -In equilibrium, stock price = intrinsic value. Intrinsic value is a longrun concept. To the extent that investor perceptions are incorrect, a stock price in the shortrun may deviate from its intrinsic value. Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the shortrun. -Managers are naturally inclined to act in their own best interests (not always the same as stockholders interest) (Agency Problems). 4 factors to solve:Managerial compensation packages, direct intervention by shareholders, the threat of firing, the threat of take over. -Capital transferred? Direct transfers (directly), Investment banking house (Middleman companies), Financial Intermediaries (Banks).

-Financial Market: Well-functioning financial markets facilitate the flow of capital from investors to the users of capital. Markets provide savers with returns on their money saved/invested, which provides them money in the future. Markets provide users of capital with the necessary funds to finance their investment projects. Well-functioning markets promote economic growth. Economies with well-developed markets perform better than economies with poorly-functioning markets. -Markets: Spot(happen immediately), Futures(happens in the future:locked in prices), Money(Mature <1year:T-bill, commercial papers), Capital(Mature>1 year:Bonds, stocks). -Auction market(NYSE,AMEX with brokers), dealer market(NASDAQ buy&sell), exchange(trade), OTC(Over-the-counter). -Investment Bank(help companies raise capital, help corporations design securities with features that are currently attractive to investors, buy these securities from the corporation, and resell them to the needed capital. Commercial Bank(BOA, CitiB, WellFare the traditional department stores of finance serving a variety of saver and borrowers. Major institution that handled checking account). Financial services Corp(combine many different financial institutions within a single corporation, started in one area but have now diversified to cover most of the financial spectrum). Credit Union(for members who have a common bond, ex being employees of the same firm, members savings are loaned only to other members for auto purchase, home improvement loan, home mortgages. The cheapest source for individual). Pension funds(retirement plans funded by corporations or government agencies for their workers, invest primarily in bonds, stocks, mortgage, real estate). Life insurance companies(taking savings in form of annual premiums, invest these funds in stocks, bonds, real estate, and mortgage, and make payment to the beneficiaries of the insured parties). Mutal fund(Corporation that accept money from savers and then use these funds to buy stocks, longterm bonds, or shortterm debt instruments. Exchange Traded Fund ETFs(are similar to regular mutual funds, buy a portfolio of stocks of a certain type, then sell their own shares to the public, shares are traded in public market).Hedge funds(similar to mutual fund, accept money from saver and use the funds to buy various securities. Difference:Mutal fund and ETF are registered and regulated by SEC, hedge funds are unregulated. Mutual funds target small investors, hedge fund have large minimum investments exceed $1 million and high net worth. Some hedge funds more risks than mutual fund. Private equity companies(organization like hedge funds, but

rather than buying some of the stock of a firm, they buy and then manage entire firms, most money used to buy the target companies is borrowed. -Quote of Stock: Div&Yield=Div/P. Market cap=PxQuantity -Efficient Market Hypothesis (EMH): Securities are normally in equilibrium and are fairly priced. Investors cannot beat the market except through good luck or better info. Levels of market efficiency (Weak-form (cant profit by looking at past trends, a recent decline is no reason to think stocks will go up(down) in the future), semistrongform(All publicly available info is reflected in stock prices, so it doesnt pay to over analyze annual reports looking for undervalued stocks, but superior analysts can still profit by finding new info, strong-form efficiency(All info, even inside info, is embedded in stock prices, not true since insiders can gain by trading info but illigal). -Efficiency Continuum: Small companies not followed by many analysts, not much contact with investors. Large companies followed by many analysts, good communications with investors. -NWC=CA-(AP+AC) -FCF(The cash flow actually available for distribution to all investors(not only for shareholders)after the co. has made the investments to sustain ongoing operations). -FCF=Operating CF-Gross Investment in Operating Capital=(NOPAT+D&A)-(Capital Expenditures+NWC)=(EBIT(1-T) +D&A)-( Gross Fixed Assets+NWC) -Problems with ROE: ROE and shareholder wealth are correlated, but problems can arise when ROE is the sole measure of performance(ROE does not consider risk, ROE does not consider the amount of capital invested, Might encourage managers to make investment decisions that do not benefit shareholders), ROE focuses only on return and a better measure would consider risk and return. -ROA &ROE: The fact that ROE exceeds ROA reflects the companys use of financial leverage. Wide variations in ROE illustrate the effect that leverage can have on profitability. ROA is lowered by debt interest lowered NI, which also lowers ROA = NI/Assets. But use of debt also lowers equity, hence debt could raise ROE=NI/Equity. ROE w/DuPont System: ROE = PM(NE/S)xTATO(S/TA)xEM(TA/E)=> ROE=ROAxEM. -Focuses on expense control (PM), asset utilization (TATO), and debt utilization (EMulti)