Fin515 Week 1

• a. Why is corporate finance important to all managers? Corporate finance provides the skills managers need to identify and select the corporation's strategies and individual projects that add value to their firm. It also allows them to forecast the funding requirements of their company and devise strategies for acquiring those funds.

• 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. Sole Proprietor: is a business owned and controlled by one person. Advantages: fewer regulations, easy to establish and no corporate income taxes. Disadvantages: limited life, unlimited liability and difficult to raise funds. Partnership: two or more individuals to share finances and resources. This type has the same advantages and disadvantages of the sole proprietor. However, the partnership has shared resources and control with one or more individuals. Corporation: A business entity created under the laws of a state as a separate legal entity that has the privileges and liabilities that are distinct from those of its members. Corporations have limited liabilities. If company fails, shareholders, who invested in the company, lose money in the company. But they will not be responsible for the debts like with the other two organizational forms. If corporation fails, shareholders lose their investments and are not responsible to pay back creditors. Disadvantages of corporations is the high expense of running business, double-taxation, and all the reports they must provide annually (annual reports, shareholder and directors meetings)

• c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance? A company goes public when it sells stock to the public. It might issue additional stock or debt. An agency problem occurs when the managers act in their own self interests and not in the interests of the shareholders....