FI515_Homework1

FI515_Homework1 - Homework-Week 1 Mini case- Textbook (Page...

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Homework-Week 1 Mini case- Textbook (Page 45) A. Why finance corporate is important to all managers? Corporate finance is important to all managers because it provides the skills managers need to identify  and select the corporate strategies and individual projects that add value to their firm. This also allows  managers to calculate budgets and funding and find ways to get the funding. B. Describe the organizational forms a company might have as it evolves from a start- up to a major corporation. List the advantages and disadvantages of each form. There are three forms of business organizational:  1. Sole proprietorship:  Is an unincorporated business owned by one individual. Advantages:  Easy and inexpensively to start up, it is not subjected  to a lot of government regulations, and there are no corporate  income taxes.   Disadvantages:  It may be difficult to obtain capital to growth, would  be limited life, unlimited liability.  2. Partnership:   Exist whenever two or more persons or entities associate to conduct a non- corporate business for profit. Advantages:   A partnership has included limited startup costs and a shared financial  commitment.    Disadvantages:  Partners may have different visions or goals for the business.   There  may be an unequal share of time and finances.   There could be personal disputes that  may get in the way of running the business.
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3. Corporation:  Is a legal entity created under the state laws and it is separate and distinct  from its owners and managers. Advantages:  a corporation has unlimited life, easy transfer of ownership interest, limited  liability, and the ease of raising capital.  Disadvantages:   might include double taxation, and cost of set-up and report filing. C. How do corporations “go public” and continue to grow? What are agency  problems? What is corporate governance? After corporations go public they need to continue to grow by borrowing from banks, issuing debt, or  selling additional shares of stocks.   When managers act in their own interest and not on behalf of owners  (stockholders), this is called agency problems.  Agency problems can be addressed by a company’s  corporate governance.   Corporate governance is the set of rules that control the company’s behavior  towards its directors, managers, employees, shareholders, creditors, customers, competitors, and  community. D.
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This note was uploaded on 07/24/2011 for the course FIN 515 taught by Professor Michuad during the Spring '10 term at DeVry Chicago.

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FI515_Homework1 - Homework-Week 1 Mini case- Textbook (Page...

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