Mini Case Chapter 1
a. Why is corporate finance important to all managers?
Corporate Finance is the specific area of finance dealing with the financial decisions corporations make, and the tools and analysis used to make the decisions. Corporate finance is important to all managers because managers must make very important decisions that will direct the future of their businesses. Most of these decisions will be made, based on the analysis of its financial status. Corporate finance provides the skills managers need to: (1) identify and select the corporate strategies and individual projects that add value to their firm; and (2) 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 a start-up to a major corporation. List the advantages and disadvantages of each form. * Sole proprietorships are the simplest businesses to form, but equity financing is limited to the owner's assets. * General partnerships require at least two owners, so equity financing possibilities are greater than in proprietorships. * Limited partnerships can provide limited liability to some of the owners, if they're not active participants in the business. * Corporations provide the most flexible possibilities for investors. * Limited liability companies/limited liability partnerships are business entities that combine favorable tax treatment with limited legal liability for the owners. c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance? 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. Corporate governance is a term that refers broadly to the rules, processes, or...
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