Question 1-2: What are the three principal forms of business organization? What are the advantages and disadvantages?

The three forms of business organizations are proprietorship, partnership, and corporations. The first two forms proprietorship and partnership are very similar based on advantages and disadvantages. Advantages are that it is easily and inexpensively formed, there are very few government regulations and the income is not subject to corporate taxation but taxes on the proprietors or partners incomes. For a corporation there are three main advantages. First a corporation is ever lasting if an owner dies there will be someone to take that persons place. Second the ownership interest is transferred easily because shares are divided equally. Third there are limited liabilities where losses are limited to the actual funds invested. The main disadvantages for the proprietorship and partnership are that the owners can basically lose everything and go bankrupt. That would potentially mean the end of the business. The only saving grace with a partnership is if one partner goes bankrupt the other could potentially make good on the claims. There are two main disadvantages of a corporation the first being that earnings can be subject to double taxation meaning earnings from corporation are taxed and earnings from the shareholders are taxed as well. The second disadvantage is that a corporation is very hard to set up. You need to prepare a charter, write bylaws, and fill out the state and federal report.

Question 1-3: What is a firm’s fundamental, or intrinsic, value? What might cause a firm’s intrinsic value to be different then its actual market value?

The fundamental value or intrinsic value is the actual value of a company based on its true value of all aspects of the business. These values could differentiate from actual market value