Fi515 Mini Case

Mini Case

Assignment Week 1

A. Why is corporate finance important to all managers?

Corporate finance is important to managers because it helps managers 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.

There are three major organizational forms a company might have: Sole proprietorship, Partnership, Corporation.

Sole Proprietorship has some advantages, it is easy and inexpensive to form and do not have to pay corporate income taxes. Among of the disadvantages is unlimited liability which is a risk to the owner and it is difficult to raise capital to support growth.

Partnership is just as similar to a sole proprietorship and has the same advantages and disadvantages.

Corporations are a legal entity separate from its owners and managers. It advantages include that have unlimited life, is easy transfer of ownership, limited liability which means less risk for shareholders, easy of raising capital because has more credibility with banks and investors. The disadvantages are that have to deal with double taxation and it more expensive to form.

C. How do corporations go public and continue to grow? What are agency problems?

A company goes public when it sells stock to the public in an initial public as the firm grows, it might issue additional stock or debt. An agency problem occurs when the managers of the firm act in their own self-interests and not in the interests of the shareholders.

D. What should be the primary objective of managers?

The Corporation’s primary goal is stockholder wealth maximization, which translates to maximizing the price of the firm’s common stock.

1. Do firms have any responsibilities to society at large?

Firms have an ethical responsibility to provide a safe working environment, to avoid polluting the...