Fin515 Homework1 Case Ch1

CASE – Chapter 1 Mini Case

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre.

a. Why is corporate finance important to all managers? Corporate finance is important to all managers, not just the financial managers, since in essence, it determines the company’s long-term viability and ability to make profitable business decisions, and to maximize the company’s value by maximizing the stock value of a Corporation. This is the ultimate responsibility, and goal of all managers within a Corporation.

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. (1) Most commonly, businesses in general begin their life as a sole proprietorship. The majority of the businesses in the United States are actually sole proprietors. If the business needs to grow larger than the proprietor’s ability to raise the needed

capital, then they must look outside for additional sources of funds, or skills and talents. The advantages of a sole proprietorship is the ease for setting it up, and the minimal regulatory structures controlling the activities of the business. The income is also taxed at the individual level. The disadvantages are that the proprietor is fully exposed for all liability created out of the business. Their personal...