Financial Accounting Mini Case Study

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FI515-Homework Week 1 Mini Case (page 45) A. Why is corporate finance important to all managers? Corporate finance provides the skills managers need to identify and select the corporation's strategies and individual projects that add value to their firm. It also allows them to forecast the funding requirements of their company and devise strategies for acquiring those funds. B. Describe the organizational forms a company might have as it evolves from start-up to a major corporation. List the advantages and disadvantages of each form. Sole Proprietor: is a business owned and controlled by one person. Advantages: subject to fewer regulations, easy to establish and no corporate income taxes. Disadvantages: limited life, unlimited liability and difficult to raise funds. Partnership: is where you join forces with other individuals to share finances and resources. This type of business form has roughly the same advantages and disadvantages of the sole proprietor. However, the partnership has shared resources and control as well as broader skills and resources. Corporation: is organized as a separate legal entity owned by stockholders. Advantages: unlimited life, easy transfer of ownership, limited liability and easy to raise capital. Disadvantages: double taxation, cost of set-up and report filing. C. How do corporations go public and continue to grow? What are agency problems? A company goes public when it sells stock to the public in an initial public as the firm grows, it might issue additional stock or debt. An agency problem occurs when the managers of the firm act in their own self interests and not in the interests of the shareholders. D. What should be the primary objectives of managers? The primary objectives should be shareholder wealth maximization which transfers to maximizing stock price. 1. Do firms have any responsibility to society at large? Yes, they have a responsibility to shareholders who are also a part of society. 2. Is stock price maximization...
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