Essay on Fin515

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Mini Case (p. 45) a. Why is corporate finance important to all managers?
In order to be able to evaluate and choose those projects that can add value to the company and consequently generate cash to compensate those who invested in the company, managers must have expertise in finance. 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.
Proprietorship is a business owned by single individual with following advantages: easy and inexpensive to form subject to few government regulations business is taxed as part of the owner’s personal income.

Disadvantages: difficult to obtain the capital needed for growth
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The disadvantages are: more paper work, need to file government regulatory forms, double taxation of earnings. c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
As corporations continue to grow they need additional funds to support their operation. One of the options to obtain additional financing is through initial public offering or IPO by selling its stocks to the public. Stock holders are the owners of the corporations but not managers so managers are hired to run the corporation. An agency problem is when managers do not act in the best interest of the corporation and instead act in their own best interest. Corporate governance is a set of rules that prevent managers from acting this way. d. What should be the primary objective of managers?
Primary objective of managers is to maximize stockholders wealth. (1) Do firms have any responsibilities to society at large?
In short the answer is yes but the objective above is still the most important objective. (2) Is stock price maximization good or bad for society?
It is good for the following reasons when looking from long term perspective: * Owners of the stock are society like ~50% of all US population, mutual funds, pension plans or insurance companies, so it does benefit society. * Consumers’ benefit through competitiveness in product

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