Unit 1 Case Problems

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Q1. What are the three types of financial management decisions? Title of paper here Your name here School name here Course name here Course number here Instructor’s name here March xx, 20xx Unit 1 Case Problem Q1. What are the three types of financial management decisions? For each type, give an example of a business transaction that would be relevant Three types of management decisions are what type of long term investments to take on (Capital Budgeting), where to get the financial backing for the investments (Capital Structure), and how to manage the everyday financial activities (Working Capital Management). Some examples of capital budgeting would include purchasing a new building, purchasing expensive equipment, or developing a new product line. Establishing the capital structure for the corporation could include bringing in other owners or borrowing money from lenders. Deciding how much to outsource and borrow are crucial when considering the return on the investment. Working capital is a firms short term assets that manages daily cash flow. Deciding how much inventory to keep, selling on credit, and setting terms for credit sales are a few examples of working capital. (Ross, Stephens, & Westerfield, 2013) Q3. What is the primary disadvantage of the corporate form of organization? Describe at least two advantages of the corporate organization. The primary disadvantage for a corporation is double taxation. A corporation is a legal person and must pay taxes on profits. Stockholders must also pay taxes on dividends received from a corporation, resulting in double taxation. Two advantages in forming a corporation is the limited liability for owners from the business’ debt and the potential for the unlimited life of the business.

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