Advanced Managerial Finance

Chapter 1

Mini Case:

a) One reason corporate finance is important to all mangers is so they will be able to address raising the capital their company needs in order to implement its plans. The second reason corporate finance is important to all managers is so they will be able to generate enough cash to compensate the investors who provide them the necessary capital. Corporate finance will help managers be able to evaluate any proposal and implement the projects that add value for their investors.

b) A company might start up as a proprietorship, which is an unincorporated business owned by one individual. The advantages of a proprietorship are it is easy and inexpensive to form, it is subject to few government regulations, and its income is not subject to corporate taxation. The disadvantages of a proprietorship are it may be more difficult to obtain the capital needed for growth, unlimited personal liability for the business’s debts, and the life of the proprietorship is limited to the life of its founder.

The company may start up as a partnership, which exists when two or more people or entities associate to conduct a noncorporate business for profit. Partnerships have the same advantages and disadvantages as a proprietorship. Partnerships can be formed as limited or limited liability partnerships. The advantage of a limited partnership is that the limited partners can lose only the amount of their investment in the partnership, while the general partners have unlimited liability. The advantage of a limited liability partnership is that all partners have limited liability with regard to the business’s liabilities, and their potential losses are limited to their investment in the LLP.

The company may then evolve into a corporation, which is a legal entity created under state laws and it is separate and distinct from its owners and managers. The advantages of a corporation are the corporation can continue after its original owners and...