Fin515

Mini Case-page 45

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?- It is important to all managers because corporate finance is how a business is ran, a manager must know how their business is financed, if there is a risk of bankruptcy. A manager should have full recognition of direct funds from day to day operations, and understand the equity in a business to determine the potential of growth within the business.

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.- Most companies start out as what is known as a sole proprietorship and build to a corporation. As a sole proprietorship the business is owned by an individual and is unincorporated. A sole proprietorship is the easiest form, due to the fact after obtaining business licenses from city or state the individual is ready to begin operations of the business. A sole proprietorship has three advantages: First it is easy and inexpensive to form; second, it is subject to few government regulations; and third income is not subject to corporation taxation, however a sole proprietorship is taxed as part of the owner personal income tax. Disadvantages: It could be difficult for a sole proprietorship to obtain...