This week's graded topics relate to the following Terminal Course Objectives (TCOs):
A Given the financial management scenario, evaluate the responsibilities of a financial manager and how he/she ensures that the firm is meeting its financial management goals.
C Given the term structure of interest rates, the particulars of corporate income tax theory, and the tradeoff between risk and return, demonstrate the risk and return for both individual assets and portfolios of assets.
G Given a company's financial statements and sales forecast, develop a monthly cash budget for at least one year and pro forma financial statements for five years. Utilizing financial ratios and other ...view middle of the document...
Secondly is a way to measure the corporate managers’ effectiveness in handling capital and returns on investments.
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.
Small organizations are most likely to be set-up as a Sole Proprietor or Partnership; the advantages are around the easy to set-up and taxation was taxes are paid as personal income; disadvantage is the risk of failure or law suits where one could lose their personal assets not usually seen as business assets.
Large organizations will be incorporated; advantages may include easy to raise capital and limited risk to the shareholders; disadvantage is the progressive corporate tax rates.
c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
1. Corporation go public to raise capital through the sale of stock in order to invest in new plant, property and equipment to expand products and product lines to attract new customers that will grow the bottom line (net income).
2. Agency problems are seen in corporate businesses where the board’s responsibility is to manage risks, where their management team may not act or behave in the best interest of the stockholder to maximize the stock price and/or business value.
3. But corporate governance is the process in which the board put into place a control system (charters, by laws, and policies) to reduce the risk and police the potential of Manager’s that are not working to better the greater good of the corporation but acting inappropriately in a self-fulfillment or self-betterment.
d. What should be the primary objective of managers?
To maximize stockholder value to drive free cash flow and manage the discount of weighted average of cost of capital.