MaxMark_Ch05_edited

MaxMark_Ch05_edited - MenuItem 5: (Topic 5)Corporations...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MenuItem 5: (Topic 5)Corporations issuing equity in the share market Question 1: There are many differences between private companies and publicly listed corporations. Which of the following is not a valid statement? A: listed corporations are generally larger than private companies B: listed corporations are able to raise equity from the public while private companies cannot C: listed corporations have many more shareholders than private companies D*: only listed corporations are able to raise equity from the public Feedback: A, B and C are all true but D is not a valid statement in that all public companies, whether listed or unlisted, are allowed to legally raise funds from the public. MORE: Financial Institutions, Instruments and Markets 5/e , Section 5.3, pp. 216-217. In this text the focus is on the publicly listed corporation . However, it should be noted that businesses often evolve from small beginnings: from a sole proprietorship to a private company and eventually to a size where listing on a stock exchange is a possibility. A sole proprietor is both the owner of the business and the manager of the business; he or she is personally liable for the liabilities of the business, but is also entitled to all the profits generated. As a business grows, a sole proprietor may seek additional equity funds and therefore form a small private company with a limited number of shareholders. Should the company grow to a point where it wishes to expand its equity and shareholder base further, then becoming a publicly listed company is an attractive proposition. Question 2: One aspect of financial management is the management of working capital. Which of the following most accurately describes the management of working capital? A: decisions on acquisition of real assets B: management of cash C*: managing the cash flows associated with the day-to-day operations of a business D: decisions on acquisition of real and financial assets Feedback: Management of working capital involves management of short-term assets and liabilities, so A and D are incorrect. It includes, but is not restricted to, management of cash, so B is also incorrect. MORE: Financial Institutions, Instruments and Markets 5/e , p. 207 Having acquired its assets, the firm needs to manage its day-to-day operations, and therefore its working capital. The corporation needs access to short-term funding to finance the purchase of inventory, to meet expenses as they fall due and to pay creditors. Question 3: A truck can be purchased for $150 000 and is expected to have a resale value of $40 000 at the end of 5 years. The truck is expected to generate cash inflows of $80 000 per annum over the 5 years and its operating costs are expected to be $30 000 per annum. If the required rate of return is 15 per cent, what is the NPV of the truck?...
View Full Document

Page1 / 17

MaxMark_Ch05_edited - MenuItem 5: (Topic 5)Corporations...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online