Attached.

Running head: WEEK I MINI CASE

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Week 1 Mini Case
Student’s Name
Professor’s Name
Course Title
Date

WEEK I MINI CASE

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Week 1 Mini Case

A. Why is corporate finance important to all managers?
Corporate finance is a knowledge area in finance that is responsible for funds sourcing
and their allocation through capital budgeting processes for proper use of resources and
increased wealth for shareholders.
Corporate finance plays an important role in a manager because it helps one comprehend
the company’s capital structure; hence; predict both costs and returns to the shareholders. It
comes in handy in activity alignment to ensure maximum shareholder profit and resource
allocation. Managers get the skills and information needed for effective objective execution
while adhering to corporate governance from corporate finance.
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.
i.

Sole Proprietorship
This is the most regular and simplest business ownership form. It is a business run and

owned by an individual. All decisions depend on the owner, and he or she is the sole beneficiary.
Advantages include limited regulation; all profits belong to the owner; there is total flexibility for
the owner to run the business, and often only a license is required to start a business.
Disadvantages include the owner’s 100% liable for debts, limited equity to the resources
personal to the owner, it is often difficult to transfer proprietorship ownership, and limited
boundaries exist between business and personal income (Patrick, 2015).
ii.

Partnership
This form is in two types. First, general partnerships where labor, property, and money are

invested by both owners, and the two carry the burden of debt liability. It is often informal-

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implied or verbal. Second is the limited partnerships that are formal with a state filed certificate.
With this, investing little means you are liable for a smaller portion of the business debt (Patrick,
2015).
Advantages include more capital due to shared resources, total profits are split between the
owners, it is simple and is flexible as a proprietorship, and both types are inexpensive to start.
Disadvantages include 100% liability for company debts for each partner; selling the company is
difficult, and partnerships end when one decides to do so.
iii.

Corporation

These are considered a legal individual and are for tax purposes. The company’s profits and
income distributed as either gains or dividends are taxed as “personal income” (Patrick, 2015).
Advantages include owner’s limited liability to losses; easy transfer to new owners and no
personal debts can be used to cater for debts
Disadvantages include expensive set-ups and operations, complex paperwork needed for the
establishment, and a minimum of two taxations.
iv.

Limited Liability Company (LLC)
Owners get limited liability likewise to a limited partnership.

Advantages include limited owner liability to debts or losses, and LLC profit sharing among the
owners is not taxed (Patrick, 2015).
Disadvantages include limited ownership by some laws of the state, complex and
comprehensive agreements, and high legal and filing fees for beginners.

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C. How do corporations go public and continue to grow? What are agency problems?
What is corporate governance?
For a corporation to grow, it would need equipment, factories and inventory and other
resources such as a dedicated team. Corporations will then look for ways to sustain their growth.
They can loan from banks, sell some stock shares, or issue debts. Corporate governance refers to
a rule set controlling the behavior of a company towards the employees, creditors, shareholders,
competitors, managers, the community, and its customers (Hansmann & Kraakman, 2017).
D. What should be the primary objective of managers?
While a corporation’s main objective is the maximization of value, a manager’s key role
is to ensure shareholders’ wealth is at maximum.
1. Do firms have any responsibilities to society at large?
Yes. It is the firm’s ethical responsibility to ensure the working environment is safe
(avoid air and water pollution) as well as products produced are safe. However, it is mandatory
that the firms prioritize actions that increase costs since shareholders are also part of society.
a) Is stock price maximization good or bad for society?
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Leading to stock price maximization are also beneficial to society. Stock price
maximization necessitates operations at low cost to produce services and goods of
high quality. It also requires that services and products be developed according to the
customers’ needs and wants; hence, the motive of the profit results in novel
technology, new job opportunities, and new products.

b) Should firms be...