Introduction to Corporate Finance

Satisfactory Essays
Week 1: Introduction to Corporate Finance

1.4. Assignment 1a
Due date: January 30, 2011

Instruction: Please submit your assignment as an attachment to my Blackboard E-mail by midnight on the due date

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.

a. Why is corporate finance important to all managers?

Answer: Corporate finance is important to all managers because it helps them gauge the future of the company and subsequently strategize and decide the path that they believe is best for the company to take, in order to maximize profit and increase the overall value of the corporation. By knowing the financial situation, managers can determine whether the company is financially healthy and thus determine how best to proceed.

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.

Answer: There are three main organizational forms and their advantages and disadvantages are listed below:
Sole proprietorship – These are ‘one-man’ operations opened by one person. They are easy to create, have little regulations, and no corporate income tax. However, the life of the operation is limited to the life of the creator, there is

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