Managerial Finance Assignment Essay

4497 Words Mar 28th, 2015 18 Pages

Open University Malaysia Semester 2, Sept 2013
BMFM 5103 – Financial Management

Question 1

If the goal of a firm is to maximize the shareholder wealth does it mean profit is not important at all? Explain your answer. (5 marks)

Maximizing the shareholder’s wealth is long term process. Shareholder wealth is maximized by maximizing the difference between the market value of the firm’s stock and the amount of equity capital that was supplied by shareholders (Brigham & Ehrhardt: 2011). In order to maximize the value of the firm the managers should make all decisions to increase the total long run market value of the firm. Therefore the
…show more content…
The owner of a sole proprietorship enjoys all the profits. Its income is not subject to corporate taxation but taxed only as a part of the proprietor’s personal income. The disadvantages of sole trader is the owner has unlimited liability for business debts. It is also difficult to generate capital for the growth of the business, as the amount of equity that can be raised is limited to the proprietor's personal wealth. The life of a sole proprietorship is limited to the owner's life span.
A Partnership is a business owned by two or more persons for profit. There are there classification of partnership; general partnership, limited partnership and limited liability partnership. The advantages are that a partnership business is relatively easy to form although considerable amount of time taken in developing the partnership agreement. It is easier to raise capital as there is more than one investor. Any income is declared as the partners’ personal income tax returns; thus there are no corporate income taxes. The disadvantages of partnership are partners are jointly responsible for all the obligations of the business. And disputes or conflicts may occur when partners make decision together.
A corporation is a limited liability entity doing business owned by multiple shareholders and is overseen by a board of directors elected by the

Related Documents