September 11, 2012
Unit 1 homework Page 45-46
Professor Ana Machuca
a) Why is corporate finance important to all managers? The corporate finance is important to managers because it provides the skills for the managers. It also identifies and selects the corporate strategies and projects that help add value to the firm. It also helps with the forecast funding requirements of the company and how to obtain those funds (Ehrhardt).
b) Forms of business organization are sole proprietors, partnerships and corporations. Sole proprietors advantages and disadvantages are
1) Ease of formation 1) limited life
2) Subject to few regulations 2) unlimited liability
3) No corporate income taxes 3) difficult to raise capital (Ehrhardt)
Corporations’ advantages and disadvantages are
1) Unlimited life 1) liable taxation
2) Easy to transfer ownership 2) shareholders are taxed on dividends
3) Easy to raise capital 3) cost of set up and report filing (Ehrhardt)
c) Becoming a public company and continue to grow: For a corporation to become public and grow the firm have to raise funds through an initial public offering (IPO). An IPO is the raising of capital.
1) What are agency problems and corporate governance? The agency problem is the fact that a firm’s owners’ are not the managers and the managers act in the interests of the managers and not the interest of the owners and stockholders. The corporate governance is when the agency problems are addressed. The governance is a set of rules that control the company’s behavior towards managers, directors and shareholders (Ehrhardt).
d) What should managers’ primary objectives be? The primary objectives for a firm’s manager should be the shareholders wealth maximization and maximizing stock prices (Ehrhardt).
1) Do firm’s have any responsibility to society at large? Yes a firm has...