Financial Management

Samuel Osei. FI515

Week 1 Assignment MINI CASE

a. Corporate finance provides the skills managers need to Identify and select the corporate strategies and individual projects that add value to their firm. Forecast the funding requirements of their company, and devise strategies for acquiring those funds.

b. Organizational forms assumed by companies as they evolve include Sole proprietorship, Partnership and Corporation. Each form has its advantages and disadvantages. Sole proprietorship has the following advantages and disadvantages

Advantages: Ease of formation, Subject to few regulations, No corporate income taxes

Disadvantages: Limited life, unlimited liability and difficulty in raising capital to support growth

As companies evolve into partnerships, they are confronted with similar disadvantages and advantages synonymous with Proprietorship. As companies grow, they evolve into corporations by filing articles of incorporation with the state. These articles stipulate charters and by laws that of the corporation. The following advantages and disadvantages are associated with incorporation.

Advantages: Unlimited life, Easy transfer of ownership, Limited liability, Ease of raising capital. Disadvantages: Double taxation, Cost of set-up and report filing.

c. Corporations go public by Initial Public Offering (IPO) of Stock to raises cash, Allows founders and pre-IPO investors to recoup some of their wealth. Also, Corporations do expand operations through the issuance of debt and equity.

Agency problems are situations where managers chose to act in their own interests rather than on behalf or interest of owners (stockholders).

Corporate governance is the set of rules that control a company’s behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community.

d. The primary objectives of managers should be to maximize shareholders wealth.

Yes. Firms have responsibilities to society at...