Corporation and Large Minimum Investments

Topics: Corporation, Limited liability partnership, Limited liability company Pages: 2 (670 words) Published: March 15, 2011
Q1-1 If you bought a share of stock, what would you expect to receive, when would you expect to receive it, and would you be certain that your expectations would be met? If managers make good decisions, its stock price will increase; however, if its managers make bad decisions, the stock price will decrease. Management's goal should be to make decisions designed to maximize the stock's price. Shareholder Wealth Maximization: The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm's common stock. Q1-5 Suppose three honest individuals gave you their estimates of Stock X's intrinsic value, One person is your current roommate, the second person is a professional security analyst with an excellent reputation on Wall Street , and the third person is a Company X's CFO. If the three estimates differed, in which one would you have the most confidence? Why? 3rd person who is a Company X's CFO: A firm's managers have the best information about the firm's future prospects, so managers' estimates of intrinsic values are generally better than those of outside investors. Q1-8 What are the four forms of business organization? What are the disadvantages and disadvantages of each? Proprietorship: An unincorporated business owned by one individual. Partnership: An unincorporated business owned by two or more individuals. Corporation: A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership and limited liability. Limited Liability Company (LLC): A relatively new type of organization that is a hybrid between a partnership and a corporation. Limited Liability Partnership (LLP): Similar to an LLC but used for professional firms in the fields of accounting, law, and architecture. It has limited liability like corporations but is taxed like partnerships. Limited liability reduces the risks borne by investors....
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