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Home Work

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  • November 2012
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Chapter1

1. How did the recession of 2007–2009 compare with other recessions since the Great Depression in terms of length?

Ans.It was the longest. This may be close to a perfect storm situation on top of a real estate bust, and a financial bust [crime?], "Technology" is a big part of the unemployment situation, and then there's the world wide normalizing of salary levels - China, India, etc. up, US down.

2. What effect did the recession of 2007–2009 have on government regulation?

It was greatly increased.

3. What advantages does a sole proprietorship offer? What is a major drawback of this type of organization?

A sole proprietorship offers the advantage of simplicity of decision-making and low organizational and operating costs. A major drawback is that there is unlimited liability to the owner.

8. Why are institutional investors important in today's business world?

Because institutional investors such as pension funds and mutual funds own a large percentage of major U.S. companies, they are having more to say about the way publicly owned companies are managed. As a group, they have the ability to vote large blocks of shares for the election of a board of directors, which is supposed to run the company in an efficient, competitive manner. The threat of being able to replace poor performing boards of directors makes institutional investors quite influential. Since these institutions, like pension funds and mutual funds, represent individual workers and investors, they have a responsibility to see that the firm is managed in an efficient and ethical way.

9. Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal of maximization of shareholder wealth?

The problem with a profit maximization goal is that it fails to take account of risk, the timing of the benefits is not considered, and profit measurement is a very inexact process. The goal of shareholders wealth maximization implies that the firm will...