CHAPTER 1: INTRODUCTION TO FINANCE
NAME: DEVIKA MATHAVAN
USER ID: 218454
HOMEWORK – FROM NOTES
1. What is the "SEC"?
Answer 1: SEC stands for Securities & Exchange Commission is a government agency which regulates the Primary market activities.SEC protects investors from unreliable financial information.
2. What is the goal of the Corporation and cite an advantage/disadvantage associated with the stated goal.
Answer 2: The prime objective of corporation is to maximize the shareholders wealth.
Advantage: Consumers can purchase wide variety of service/goods at affordable price.
Disadvantage: Corporation tend to abuse the environment, consumer or workers.
3. What is the 'agency' issue associated with corporations and cite 3 factors which enhance shareholder control over management.
Answer 3: The agency issue is the conflict between the shareholders and the management. The shareholders are the “principle” and the management acts as the “agent”.
The shareholders control over management is empowered by the Sarbanes-Oxley Act.
Shareholders are currently more aggressive in making sure the management works on their interest.
Shareholders have the power to hire and fire the management.
4. Why are 'profits alone' an insufficient corporate objective?
Answer 4: The goal of the firm is not to maximize the profits alone due to riskiness and the timing of the cash flows.
5. Cite 2 advantages/disadvantages associated with the sole proprietorship and the corporate form of business ownership.
Advantages: Easy to form and Total management control.
Disadvantages: Limited Life and Difficult to transfer.
Advantages: Unlimited life and Limited liability.
Disadvantages: Difficult to form and Double taxation.
6. Describe the 'short term’ financial perspective. Describe the 'long term' financial perspective.
Answer 6: The short term financial perspective is Working capital...