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Assignment 1, Week 1

1. Define the terms finance and financial management, and identify the major sub-areas of finance. Finance is the way in which money is used and handled; especially, the way in which large amounts of money are used and handled by governments and companies (Merriam-Webster, 2014). Financial Management is the planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization (Businessdictionary, 2014). The major sub-areas of finance are: investments—involves methods and techniques for making decisions about what kinds of securities to own; financial management—deals with a firm’s decisions in acquiring and using the cash that is received from investors or from
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An advantage are corporate shareholders cannot lose more money than they originally paid for their share of stock. A disadvantage to being a corporation is that corporations are double-taxed. Federal and state government tax corporate income once at the corporate level, and then the shareholders pay taxes again at the personal level. Hybrid Organizations promotes the growth of small businesses. An advantage is that they offer single taxation and limited liability to all owners. A disadvantage is that the owners bear personal liability for the firm’s debt (Cornett, Adair, & Nofsinger, 2014). 3. Define the terms agency relationship and agency problem, and list the three approaches to minimize the conflict of interest resulting from the agency problem. Whenever one party hires someone else to work for him or her that is an agency relationship. An agency problem is when the manager that is hired by the firm to operate the firm spend company money to improve their own lifestyle instead of earning more profits for shareholders (Cornett, Adair, & Nofsinger, 2014). The first approach is to ignore it, of the amount of money involved is small enough relative to the firm’s cash flow. The second approach is to monitor the manager’s actions. The final approach is to make the manager an owner. Making the manager an equity stake in the firm. 4. "Why is ethical behavior so important in the field of finance" (Cornett, Adair, & Nofsinger,

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