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Unformatted text preview: Chapter 1: The Scope of Corporate Finance Answers to End of Chapter Questions 1-1.A financial manager needs to know all five basic finance areas because they all impact his or her job. While the manager’s primary responsibilities may be raising money or choosing invest- ment projects, the manager also needs to know about capital markets and debt/equity optimal levels, be able to manage risks of the business and governance of the corporation. Corporate governance is a function because a manager wants to act in the best interest of its sharehold- ers. New methods of managing risk have been developed in recent years, and a manager must be aware of these in order to maximize shareholder value. 1-2.Internet exercise 1-3. Advantages of Proprietorships and Partnerships Disadvantages Easy to form Limited life Few regulations Unlimited liability No corporate income taxes Hard to raise capital Being one’s own boss Advantages of Corporations Disadvantages Unlimited life Double taxation Easy to transfer ownership Costly set up Limited liability Costly periodic reports required Easier to raise capital 1-4.Each country has somewhat different tax laws, although the basics are similar. One difference is that most countries, unlike the U.S., do not tax dividend income at the personal tax level; in other words, there is no double taxation of dividends. The U.S., in spite of recent accounting scandals, is considered to have one of the most transparent sets of accounting rules. Foreign companies wishing to be listed on U.S. exchanges must conform to GAAP rule, though this companies wishing to be listed on U....
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- Spring '10
- Corporate Finance, Stockholders Payoff