FIN515 Homework 1
a) Corporate finance gives managers the skills needed to identify and select the corporate strategies and individual projects necessary to add value to the firm. It also allows them the estimate the funding needed for the company and how to acquire them.
b) The three main forms of business organization are sole proprietorships, partnerships, and corporations. Now a proprietorship has three important advantages: it is easy and
inexpensively, it is subject to few government regulations, and the business does not have to pay corporate income taxes. The proprietorship also has three important limitations: it can difficult for a proprietorship to obtain large sums of capital; the proprietor has unlimited personal liability for the business’s debts, and the life of a business organized as a proprietorship is limited to the life of the individual who created it.
The major advantage of a partnership is the fact that it is low cost and easy to form. The
disadvantages are similar to those associated with proprietorships: unlimited liability, limited life of the organization, difficulty of transferring ownership, and difficulty of raising large amounts of capital. The tax treatment of a partnership is similar to that for proprietorships, which can be seen as an advantage.
The corporate form of business has three major advantages: unlimited life, easy transferability of ownership interest, and limited liability. While the corporate form offers significant advantages over proprietorships and partnerships, it does have two primary disadvantages: corporate earnings may be subject to double taxation and setting up a corporation and filing the many reports are more complex and time-consuming than for a proprietorship or a partnership.
In a limited partnership, the limited partners are liable for the amount of their investment in the partnership; however, the limited partners typically have no control. The limited...