Fi515 Chapter 1 Mini Case
MINI CASE
a. Why is corporate finance important to all managers?
Corporate finance is important to all managers because it provides managers the skills needed to identify and select the corporate strategies and individual projects that add value to their firm and 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.
The organizational forms a company might have as it evolves from a start-up to a major corporation are proprietorship, partnership, or corporation.
The advantages of a proprietorship are:
• Easy and inexpensive to form,
• Subject to few government regulations, and
• Income not subject to corporate taxation.
The disadvantages of a proprietorship are:
• May be difficult to obtain the capital needed for growth,
• Unlimited personal liability for the businesses’ debts, and
• Limited to the life of its founder.
The advantages of a partnership are:
• Relatively easy to establish,
• Increased ability to raise funds,
• Prospective employees become attracted to the business if given the incentive to become a partner,
• May benefit from the combination of complementary skills of two or more people,
• Can be cost effective, and
• Provide moral support and will allow for more creative brainstorming.
The disadvantages of a partnership are:
• Partners are jointly and individually liable for the actions of the other partners,
• Profits must be shared,
• Disagreements can occur,
• May have limited life,
• Has limitations that keeps it from becoming a large business,
• Partners have to consult with each other before making decisions, and
• Unlimited liability.
The advantages of a corporation are:
• Unlimited life,
• Easy transferability of ownership interest, and
• Limited liability.
The disadvantages of a
a. Why is corporate finance important to all managers?
Corporate finance is important to all managers because it provides managers the skills needed to identify and select the corporate strategies and individual projects that add value to their firm and 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.
The organizational forms a company might have as it evolves from a start-up to a major corporation are proprietorship, partnership, or corporation.
The advantages of a proprietorship are:
• Easy and inexpensive to form,
• Subject to few government regulations, and
• Income not subject to corporate taxation.
The disadvantages of a proprietorship are:
• May be difficult to obtain the capital needed for growth,
• Unlimited personal liability for the businesses’ debts, and
• Limited to the life of its founder.
The advantages of a partnership are:
• Relatively easy to establish,
• Increased ability to raise funds,
• Prospective employees become attracted to the business if given the incentive to become a partner,
• May benefit from the combination of complementary skills of two or more people,
• Can be cost effective, and
• Provide moral support and will allow for more creative brainstorming.
The disadvantages of a partnership are:
• Partners are jointly and individually liable for the actions of the other partners,
• Profits must be shared,
• Disagreements can occur,
• May have limited life,
• Has limitations that keeps it from becoming a large business,
• Partners have to consult with each other before making decisions, and
• Unlimited liability.
The advantages of a corporation are:
• Unlimited life,
• Easy transferability of ownership interest, and
• Limited liability.
The disadvantages of a