Week 1 H/W Chapters 1& 2
Mini Case (Pg. 45)
A. Corporate finance is important to all managers because it helps the managers to determine what projects or expenditures will and will not add value to the firm. It will allow managers to pick only the projects what will add value to the firm. It also helps the managers determine what each project will cost the firm. The managers will look to see if they have capital for those projects. The managers will prepare the capital needed from a combination of its own capital and outside sources (savers) to fund the projects that will add value to the firm.
B. A business progresses from the sole proprietorship to partnership to a corporation ultimately. The advantages of a sole proprietorship are it is easy to start the business, requires less start-up funding, there are few governmental regulations imposed on in, and corporate taxes are not imposed. The disadvantages are it would be difficult for the business to obtain outside capital because it would be depended upon the credit worthy of the owners, the owners are 100% liable for the business, and the life of the business is depended on how long can the owners keep the business or as long as the owners are still alive. The advantages of a partnership are it is low cost as well, starting a partnership is easy, and there is a combined knowledge and resources put into the business. The disadvantages of partnership are the owners are liable for the business ad for the actions of their partners, finding outside capital will be difficult, and the business will only last if the partners are still in business or are still alive. The advantages of a corporation are it is separated from its owners as an individual entity, the owners are not liable for the business because only the business can be sued, it is very easy to fund capital for a corporation because it can issue