Fi 515 Week 1

In: Business and Management

Submitted By czar39
Words 1875
Pages 8
Mini Case 1 page 45
Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre.

a. Why is corporate finance important to all managers?
Managers must be able to evaluate proposals and strategies and implement only the projects that add value for the stock holders.

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.
Many companies will start as a proprietorship owned by one person. This is the easiest form of a company to start and can be done by obtaining a business licenses.
The main advantages are: 1. Easily and inexpensively formed 2. Subject to few government regulations 3. No corporate taxes, taxes are paid at the personal level.
Disadvantages: 1. Difficult to obtain capital 2. Unlimited personal liability 3. Life limited to the founder.

c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
Corporations may go public by selling stock to the public at large. This is usually done after entrepreneurs have self-financed and sold stock to friends, family and private investors.
The agency problem exist when the individuals running the company are not…...

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