Problem Sets

Problem Sets - FIN 351 Homework Chapter 1 (P25-P26):...

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FIN 351 Homework Chapter 1 (P25-P26): Quiz 2 – 5, Practice Problems 11 – 14, 16 – 19, 21, 22 Chapter 5 (P146-P149): Practice Problems 21, 25, 27-29, 32-35, 39-43, 47-53, 66-67 Chapter 6 (P177-P178): Practice Problems 9 – 17, 19 – 21, 24, 25 Chapter 7 (P214-P216): Practice Problems 11 – 14, 19, 21 – 25, 29 Chapter 8 (P249-P251): Practice Problems 13, 14, 17, 22, 24, 26, 27 Chapter 9 (P277-P278): Practice Problems 13, 15, 16, 23 Chapter 10 (P303-P306): Practice Problems 6, 7, 10, 19, 23 – 26 Chapter 11 (P333-P334): Practice Problems 12, 14 – 16, 20 Chapter 12 (P358-P361): Practice Problems 6 – 8, 12 – 15, 24 Chapter 13 (P385-P386): Practice Problems 9, 10, 12 – 15 Chapter 14 (P410-P411): Practice Problems 8 – 11 Chapter 16 (P466-468): Practice Problems 14, 17, 21, 24, 30, 31
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1 FIN 351 Homework Solutions Chapter 1 Goals and Governance of the Firm 2. A corporation is a distinct legal entity, separate from its owners (i.e., stockholders). The stockholders have limited liability for the debts and other obligations of the corporation. The liability of the individual stockholder is generally limited to the amount of the stockholder’s investment in the shares of the corporation. Creation of a corporation is a legal process that requires the preparation of articles of incorporation. A distinctive feature of the typical large corporation is the separation between the ownership of the business and the management of the business. On the other hand, a sole proprietorship is not distinct from the individual who operates the business. Therefore, the sole proprietor (i.e., the individual) directly owns the business assets, manages the business, and is personally responsible for the debts of the sole proprietorship. 3. The key advantage of separating ownership and management in a large corporation is that it gives the corporation permanence. The corporation continues to exist if managers are replaced or if stockholders sell their ownership interests to other investors. The corporation’s permanence is an essential characteristic in allowing corporations to obtain the large amounts of financing required by many business entities. 4. The individual stockholders of a corporation (i.e., the owners) are legally distinct from the corporation itself, which is a separate legal entity. Consequently, the stockholders are not personally liable for the debts of the corporation; the stockholders’ liability for the debts of the corporation is limited to the investment each stockholder has made in the shares of the corporation. 5. Double taxation means that a corporation’s income is taxed first at the corporate tax rate, and then, when the income is distributed to shareholders as dividends, the income is taxed again at the shareholder’s personal tax rate. 11. Both capital budgeting decisions and capital structure decisions are long-term financial decisions. However, capital budgeting decisions are long-term investment decisions, while capital structure decisions are long-term financing decisions. Capital structure decisions essentially involve selecting between equity financing and long-term debt financing.
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2 12. A bank loan is not a ‘real’ asset that can be used to produce goods or services.
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This note was uploaded on 11/18/2011 for the course FIN 351 taught by Professor Li during the Fall '09 term at S.F. State.

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Problem Sets - FIN 351 Homework Chapter 1 (P25-P26):...

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