FIN6901 Ch1 - Goals and Governance of the Corporation
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Apple decides to spend $500 million to develop a new iPhone. Is this a financing or investment decision?
GE borrows $400 million from bond investors. Is this a financing or investment decision?
Microsoft issues 100 million shares to buy a small technology company. Is this a financing or investment decision?
What is a corporation?
A business organized as a separate legal entity owned by stockholders.
What are the two types of corporations?
What is the difference between a public and private corporation?
Public corporations are traded on the stock market.
What are the benefits of a corporation?
- Limited liability
- Infinite lifespan
- Ease of raising capital
What are the drawbacks of a corporation?
- Corporations face the problem of double taxation (Corporate & capital gains)
- Improper corporate structures may lead to "Agency Problems" (Manager behavior)
What are the forms of business organizations?
- S Corporation
- Sole Proprietorships
- LLPs and LLCs
- Professional Corporation
What important about an S Corporation?
They don't pay taxes.
What is a sole proprietorship?
A corporation with one owner.
What is a partnership?
Similar to a sole proprietorship except with several founders.
Who are professional corporations for?
What are the 3 top-level financial managers?
- Chief financial officer
What is the main goal of the corporation?
Maximize shareholder value
Does value maximization justify unethical behavior?
What are agency problems?
When managers are agents for stockholders, but the managers may act in their own interest rather than maximizing value.
What are some possible takeover solutions?
- Compensation plans
- Board of directors
- Specialist monitoring
- Legal and regulatory requirements
What would you like to do?
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