Essay Finance

136751 Words Jul 9th, 2015 548 Pages
Chapter 1
Discussion Questions
1-1.

What advantages does a sole proprietorship offer? What is a major drawback of this type of organization?
A sole proprietorship offers the advantage of simplicity of decision making and low organizational and operating costs. A major drawback is that there is unlimited liability to the owner.

1-2.

What form of partnership allows some of the investors to limit their liability?
Explain briefly.
A limited partnership allows some of the partners to limit their liability. Under this arrangement, one or more partners are designated general partners and have unlimited liability for the debts of the firm; other partners are designated limited partners and are liable only for their initial contribution. The
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The threat of being able to replace poor performing boards of directors makes institutional investors quite influential. Since these institutions, like pension funds and mutual funds, represent individual workers and investors, they have a responsibility to see that the firm is managed in an efficient and ethical way.

1-7.

Why is profit maximization, by itself, an inappropriate goal? What is meant by the goal of maximization of shareholder wealth?
The problem with a profit maximization goal is that it fails to take account of risk, the timing of the benefits is not considered, and profit measurement is a very inexact process. The goal of shareholders wealth maximization implies that the firm will attempt to achieve the highest possible total valuation in the marketplace. It is the one overriding objective of the firm and should influence every decision.

1-8.

Name two areas that finance is aligned with as fields of study.
Economics and accounting.

1-9.

In the terms of the life of the securities offered, what is the difference between money and capital markets?
Money markets refer to those markets dealing with short-term securities that have a life of one year or less. Capital markets refer to securities with a life of more than one year.

1-10.

What is the difference between a primary and a secondary market?
A primary market

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