Fin 515 Week 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?

* provides managers with skills

* 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 Proprietorships - easy and inexpensive, but difficult to obtain large sums of capital; Partnership - easy and inexpensive, but unlimited liability and difficult to obtain large sums of capital; Corporation - unlimited life, easy transfer of ownership, limited liability, but double taxation and can be complex

* c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?

* Sell Stock to the Public, agency problems are when managers act in their own best interest, corporate governance is how corporations and controlled

* d. What should be the primary objective of managers?

* (1) Do firms have any responsibilities to society at large?

* technically no

* (2) Is stock price maximization good or bad for society?

* can be good, can be bad

* (3) Should firms behave ethically?

* technically yes, although behaving ethically can also harm stockholder wealth maxinmization

* e. What three...