Mini Case Page 45:
a. Why is corporate finance important to all managers?
Financial managers assist in many different areas of the business environment. They use the information provided by the accounting managers in deduce how to invest it to maximize firm profits. The financial managers have a number of internal and external functions. Financial managers are involved in capital formation and may also design and issue immediate or long-term securities to investment companies, financial institutions, and pension fund managers. They may also service a public relations function to communicate earning and dividends news to shareholders, creditors, etc. They may also be involved in the firms capital budgeting efforts and seeks out opportunities for the firm to realize its strategic objectives. The financial manager also assesses individual project opportunities. As a result of the impact of a financial manager on the entire business environment, it is imperative for all managers to understand the role of corporate finance because it will assist all managers in making effective daily business decisions that will maximize firm profits.
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List advantages and disadvantages of each form.
1. Sole Proprietorship: Has a single owner that is fully liable. Although the advantages of a sole proprietorship are that they are easy to form, few regulations, and have no corporate taxes they also have some disadvantages. The disadvantages are that they have a limited life, unlimited liability, and it is difficult to raise capital. This will hinder or impede the company’s ability to grow. In order for entrepreneurs to raise capital for their new business they must utilize their “personal resources, which may include savings, home equity loans, or even credit cards.”(Brigham/Ehrhardt's Financial Management: T&P, 13th Ed., 13th Edition. South Western Educational Publishing,...