FI515_Homework1_ - Assume that you recently graduated and...

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Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre. a. Why is corporate finance 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, forecast the funding requirements of their company, and to devise strategies for acquiring those funds. 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. The three main forms of business organization are: (1) sole proprietorships, (2) partnerships, and (3) corporations. In addition, there is the limited partnership, the limited liability partnership, corporation, and the s-corporation. Advantages: Proprietorship - it is easily and inexpensively formed, it is subject to few government regulations, and the business does not pay corporate income taxes. Partnership - low cost and ease of formation, and tax treatment of a partnership is similar to that for proprietorships Corporation - unlimited life, easy transferability of ownership interest, and limited liability. Limited Partnership - liable only for the amount of their investment in the partnership. Limited Liability Partnership - advantage of a corporation with the tax advantages of a partnership. S-Corporation – similar to a corporation but does not get double-taxed. Disadvantages:
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Proprietorship - it is difficult for a proprietorship to obtain large sums of capital, the proprietor has unlimited personal liability for the business’s debts, and the life of a business organized as a proprietorship is limited to the life of the individual who created it. Partnership - unlimited liability, limited life of the organization, difficulty of transferring ownership, and difficulty of raising large amounts of capital. Corporation: corporate earnings may be subject to double taxation and setting up a corporation and filing the many required state and federal reports is more time- consuming than for a proprietorship or a partnership. Also, corporations do not relieve the owners of professional liability. Limited Partnership – the limited partner typically have no control.
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FI515_Homework1_ - Assume that you recently graduated and...

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