Chapter 1
Answers to detailed Thinking and Concepts Review Questions
*1.3. Corporations. What is the primary disadvantage of the corporate sort of organisation? Name at least two of the advantages of corporate organisation.
Solution:
The primary disadvantage of the corporate form stack be the agency problem or the double taxation to sh atomic number 18holders of distributed earnings and dividends for some shareholders. Some advantages include: limited liability, ministration of transferability (sell/issue shares very easily, cf. sole proprietor: intemperately to sell business), ability to raise capital (bond and shares), and unlimited brio (wind up, receivership).
*1.6. Agency problems. Who owns a corporation? Describe the process whereby the owners guarantee the buckrams management. What is the main reason that an agency family exists in the corporate form of organisation? In this context, what kinds of problems offer arise?
Solution:
In the corporate form of ownership, the shareholders are the owners of the pissed. The shareholders elect (vote) the board of directors of the corporation, who in turn appoint the firms management (CEO). This separation of ownership from control in the corporate form of organisation is what causes agency problems to exist.
Management may act in its own or someone elses best interests, rather than those of the shareholders. If such events occur, they may contradict the goal of maximising the share price of the equity of the firm. (e.g. Rupert Murdoch: shareholders of News Corporation)
1.7. simple versus secondary markets. You have probably noticed coverage in the financial press of an initial public offering (IPO) of a companys securities. Is an IOT a primary-market transaction or a secondary-market transaction?
Solution:
A primary market transaction
1.9.Not-for-profit firm goals. Suppose you were the financial manager of a no-for-profit business (a not-for-profit hospital,...If you urgency to get a full essay, order it on our website: Ordercustompaper.com
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