Finance de La Torre
De la Torre a) Why is corporate finance important to all managers? * It is important for the decisions taken in the company, investment decisions and financing decisions. * Every decision taken in the company has a financial impact. * Investment projects, how much to invest and what assets to invest. * To raise the necessary cash * To increase the shareholders’ stake in the firm.
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.
Sole Proprietorship. Sole owner of a business. The manager and the owner is the same person. The sole proprietorship has unlimited liability. You pay taxes as owner and for the business ones. The advantage is the ease with which it can be establish and the lack of regulation s governing it.
Partnership. Business owned by two or more persons who are personal responsible for all its liabilities. The partners pay personal income tax on their share of these profits. Each partner has unlimited liabilities for all the business’s debts.
Corporations. Business owned by stockholders who are not personally liable for the business‘s liabilities. A corporation is legally distinct from its owners. A corporation pays taxes on its own. It is owned by stockholders and it has limited liability. There is a separation between owners and managers; they are not the same person.
c) How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
As a firm grows, it needs more capital. The firm finds out that it’s advantageous to raise funds directly from investors. This is when the firm is ready to sell new financial assets, such as share of stocks, to the public.
Agency problems are the conflict of interest between the firm’s owner and the managers.
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a
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.
Sole Proprietorship. Sole owner of a business. The manager and the owner is the same person. The sole proprietorship has unlimited liability. You pay taxes as owner and for the business ones. The advantage is the ease with which it can be establish and the lack of regulation s governing it.
Partnership. Business owned by two or more persons who are personal responsible for all its liabilities. The partners pay personal income tax on their share of these profits. Each partner has unlimited liabilities for all the business’s debts.
Corporations. Business owned by stockholders who are not personally liable for the business‘s liabilities. A corporation is legally distinct from its owners. A corporation pays taxes on its own. It is owned by stockholders and it has limited liability. There is a separation between owners and managers; they are not the same person.
c) How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
As a firm grows, it needs more capital. The firm finds out that it’s advantageous to raise funds directly from investors. This is when the firm is ready to sell new financial assets, such as share of stocks, to the public.
Agency problems are the conflict of interest between the firm’s owner and the managers.
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a
Bibliography: Fundamentals of Corporate Finance, Brealey, 5th Edition