Fin 515 Homework Assignment

Mini Case

A | Corporate finance is important to all managers because it helps them better understand what it takes to maximize the shareholder wealth and grow the profit and cash flow so that value added to the firm. |

B | * Sole proprietorship – a business owned by one person. Its advantages include: ease of formation, few regulations and no corp income taxes. However, those types of organizations are limited life, difficult to raise capital and they got unlimited liability * Partnership – a business who has more than one owner (i.e. partners) to conduct noncorp business for profit, which has got similar advantages and disadvantages to the proprietorship business * Corporation - A corporation is a legal entity separate from its owners and managers. Its advantages include unlimited life, easy transfer of ownership, limited liability, and ease of raising capital. While its disadvantages include double taxation and the cost of setup and report filing. |

C | Corporations go public by selling it's stock to the public. A corporations growth depends on their dealing in the financial markets. For example being able to pay off debts or issuing stock. An agency problem is where managers basically look out for themselves and their own interests instead of the company’s shareholders. Corporate governance is what controls the company actions and guides and controls them from performing any illegal practice. |

D | Managers primary objective should be to maximize the shareholder wealth under the corp governance and control rules (i.e. ethically). 1. Yes firms have a responsibility to society. For example, Microsoft or VMware technology companies have programs to help in promoting an educated generation right from the colleague level, or even before. 2. Yes stock price maximization is good for the society because it’s a way to grow the company’s value. 3. Yes firms have a responsibility to behave ethically as their dealings effect our economy....