End of Chapter Questions Finance

1-1

If a share of stock was bought, one would expect to receive a receipt for ownership in a company’s stock and no more. The stock market is very unpredictable and expecting to get rich will hurt you in the long run. Stocks can change value daily. One day they can soar and the other plummet! That is the beauty of the gamble.

1-5

I would have the most confidence in the second person that is a professional security analyst with an excellent reputation on Wall Street. It is the analyst’s job to be well informed on the market and this person will have an unbiased opinion on the matter. Chances are that my roommate is not a finance major and will not know the trends like the professional would. As far as the CFO for the company, that CFO would have a bias opinion since they work for the company and may just be after maximizing their shareholder wealth.

1-8

There are four main forms of business organizations and they are, sole proprietorships, partnerships, corporations, and limited liability companies and limited liability partnerships. While most businesses are sole proprietorships, the type of organization that has the greatest value of sales is a corporation. Advantages in a proprietorship are that they are easily and inexpensively formed, they are subject to few government regulations, and they are subject to lower taxes than are corporations. Some disadvantages for a proprietorship include, unlimited personal liability for the business’s debts, the life of the business is limited to the life of the individual who created it, and the difficulty in obtaining large sums of capital is great. Advantages to a partnership are that they can be started easily and inexpensively and since the firm’s income is allocated on a pro rata basis the firm will avoid the corporate income tax. Disadvantages of the partnership include that the partners are subject to unlimited personal liability. An advantage for corporations is that if the company was to go bankrupt,...