Fin515 Wk 1

Mini Case ( Page 46) 11/04/2012 Masoud (Mike) Majidian

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 Corporation Finance important to all managers?

Corporate finance provides managers with the skills to identify and select the corporate strategies and individual projects that add value to the company. It helps them to forecast the funding requirements of their company and the necessary strategies to acquire 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 3 forms of business organizations: Sole proprietorship, Partnerships and corporations. The advantages of a Proprietorship are 1) it is easily and inexpensively formed, 2) it is subject to few government regulations, 3) the business pays no Corporate Income taxes. Its disadvantages are: 1) it is difficult for a proprietorship to obtain large sums of capital, 2) the proprietor has unlimited personal liability for the business debts, 3) the life of the business is limited to the life of the owner.

The advantages of a partnership is that its low cost and ease of formation. The disadvantages are similar to those associated with proprietorships: unlimited liability, limited life of the...