FI515_Homework1_Alyssa Davis

Mini Case (pg. 45) a) Corporate finance is important to all managers because managers should understand and know the financial state of the company they are working for. Managers have a responsibility to capitalize on the value of a company for the shareholders of an organization. The decisions that will be made on a regular basis are all affected by this current financial state of a corporation. And if the managers don’t know this information then they cannot move forward.

b. First, it might start as a sole partnership company and therefore is easy to create and inexpensive. Disadvantages are that it as limited funding and growth opportunities and the owner takes all responsibility. Second, might turn into a partnership and contains more flexibility. Disadvantages are that they are subject to more taxes and they back their company with their personal assets. Next, would be a real corporation with many owners. This helps companies expand and get capital funding. It is easier to keep corporations alive. Disadvantages are that there could be more taxes and there’s a lot of work in order to get recognized as a corporation.

c. In order for a corporation to go public, they start by raising funds. They get investors, friends and venture capitalist. They could also turn to banks for financing. Corporate governance refers to the laws that they operate by.

d. The primary objective of mangers should be making profit. 1. Yes because the society becomes the stockholder and therefore supports the company. 2. Good 3. Yes because unethical firms harm innocent people and is bad for the society.

e. sales revenue, operating costs and new investments

f. free cash flows are money that is available to give to the investors, creditors and stockholders.

g. WAC of capital is after tax, debt