10 Preguntas de Fcorporativas

7/25/2019 10 Preguntas de Fcorporativas

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1. Forms of Business What are the three basic legal forms of

organizing a business? What are the advantages and

disadvantages of each? What business form do most start-up

companies take? Why?These are the basic forms of business ownership: Sole Proprietorship,

Partnership, and Corporation.Sole Proprietorship

Advantages

Simplest and least expensive form of business to establishand to dissolve.

The owner is making all the decisions and controlling the

whole operations.

All prot !ows directl" to the owner.

#t is sub$ect to fewer regulations.

#t has tax advantage: an" income is declared as the owner%s

personal income tax return, therefore there are no corporate

income taxes.&isadvantages

The owner is responsible for all the obligations of the

business. #t is di'cult to raise capital: it can onl" use the owner%s

personal saving and consumer loans.Partnership

Advantages

#t is relativel" eas" to form but considerable amount of

time should be invested in developing the partnership

agreement.

#t is easier to raise capital compared to a sole

proprietorship as there are more than one investor.

An" income is declared as the partners% personal income

tax returns, therefore there are no corporate income

taxes.

(mplo"ees ma" be motivated and attracted to the

business b" the inventive to become a partner&isadvantages

Partners are $ointl" responsible for all the obligations of

the business.

Partners must make decision together therefore disputes

or con!icts ma" occur. #t ma" eventuall" lead to

dissolving the partnership.

CorporationAdvantages of a corporation

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#t can raise additional funds through the sale of stock.

Shareholders can easil" transfer the ownership b" selling

their stock.

#ndividual owner% liabilit" is limited to the value of stock

the" are holding in the corporation.

&isadvantages of a corporation #t is restricted b" more regulations, more closel"

monitored b" governmental agencies and are more

costl" to incorporate than other forms of the

organi)ations.

Prot of the business is taxed b" the corporate tax rate.

&ividends paid to shareholders are not deductible from

corporate income, so this part of income is taxed twice

as the shareholders must declare dividends as their

personal income and pa" personal income taxes too.

What business form do most start-up companies take? Why* #t is importantto understand the di+erent t"pes of business organi)ations t"pes such as a

sole proprietorship, partnership, and corporation. A business%s

organi)ational structure in!uences issues, legal issues, nancial concerns,

and personal concerns. e can choose the best t"pe of business

organi)ations for our compan".

2. oal of Financial !anagement What goal should al"ays

motivate the actions of the #rm $ s #nancial manager?To maximi)e the current market value -share price of the e/uit" of the

rm -whether it%s publicl" traded or not.%. &gency 'roblems Who o"ns a corporation? (escribe the process

"hereby the o"ners control the #rm $ s management. What is

the main reason that an agency relationship e)ists in the

corporate form of organization? *n this conte)t+ "hat kinds of

problems can arise?#n the corporate form of ownership, the shareholders are the owners of

the rm. The shareholders elect the directors of the corporation, who in

turn appoint the rm%s management. This separation of ownership from

control in the corporate form of organi)ation is what causes agenc"

problems to exist. 0anagement ma" act in its own or someone else%s

best interests, rather than those of the shareholders. #f such events

occur, the" ma" contradict the goal of maximi)ing the share price of thee/uit" of the rm.,. ot-for-'ro#t Firm oals suppose you "ere the #nancial

manager of a not-for-pro#t business a not-for-pro#t hospital+

perhaps/. What kinds of goals do you think "ould be

appropriate?Such organi)ations fre/uentl" pursue social or political missions, so

man" di+erent goals are conceivable. 1ne goal that is often cited is

revenue minimi)ation2 i.e., provide whatever goods and services are

o+ered at the lowest possible cost to societ". A better approach might be

to observe that even a not3for3prot business has e/uit". Thus, one

answer is that the appropriate goal is to maximi)e the value of thee/uit".


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0. oal of the Firm valuate the follo"ing statement !anagers

should not focus on the current stock value because doing so

"ill lead to an overemphasis on short-term pro#ts at the

e)pense of long-term pro#ts.

Presumabl", the current stock value re!ects the risk, timing, andmagnitude of all future cash !ows, both short3term and long3term. #f this

is correct, then the statement is false.

3. thics and Firm oals 4an our goal of ma)imizing the value of

the stock con5ict "ith other goals+ such as avoiding unethical or

illegal behavior? *n particular+ do you think sub6ects like

customer and employee safety+ the environment+ and the

general good of society # t in this frame"ork+ or are they

essentially ignored? 7ry to think of some speci#c scenarios to

illustrate your ans"er.

An argument can be made either wa". At the one extreme, we couldargue that in a market econom", all of these things are priced. There is

thus an optimal level of, for example, ethical and4or illegal behavior, and

the framework of stock valuation explicitl" includes these. At the other

extreme, we could argue that these are non3economic phenomena and

are best handled through the political process. A classic -and highl"

relevant thought /uestion that illustrates this debate goes something

like this: 5A rm has estimated that the cost of improving the safet" of

one of its products is 678 million. 9owever, the rm believes that

improving the safet" of the product will onl" save 68 million in product

liabilit" claims. hat should the rm do*;

8. *nternational Firm oal Would our goal of ma)imizing the value

of the stock be di9erent if "e "ere thinking about #nancial

management in a foreign country? Why or "hy not?The goal will be the same, but the best course of action toward that goal

ma" be di+erent because of di+ering social, political, and economic

institutions.:. &gency 'roblems ;uppose you o"n stock in a company. 7he

current price per share is < 20. &nother company has 6ust

announced that it "ants to buy your company and "ill pay < %0

per share to ac=uire all the outstanding stock. >our company$ s

management immediately begins #ghting o9 this hostile bid. *smanagement acting in the shareholders$ best interests? Why or

"hy not?The goal of management should be to maximi)e the share price for the

current shareholders. #f management believes that it can improve the

protabilit" of the rm so that the share price will exceed 67


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corporation is ac/uired, poorl" monitored managers have an incentive to

ght corporate takeovers in situations such as this.. &gency 'roblems and 4orporate @"nership 4orporate o"nership

varies around the "orld. Aistorically+ individuals have o"ned the

ma6ority of shares in public corporations in the nited ;tates. *n

ermany and Capan+ ho"ever+ banks+ other large #nancialinstitutions+ and other companies o"n most of the stock in

public corporations. (o you think agency problems are likely to

be more or less severe in ermany and Capan than in the nited

;tates? Why? *n recent years+ large #nancial institutions such as

mutual funds and pension funds have been becoming the

dominant o"ners of stock in the nited ;tates+ and these

institutions are becoming more active in corporate a9airs. What

are the implications of this trend for agency problems and

corporate control?e would expect agenc" problems to be less severe in other countries,

primaril" due to the relativel" small percentage of individual ownership.=ewer individual owners should reduce the number of diverse opinions

concerning corporate goals. The high percentage of institutional

ownership might lead to a higher degree of agreement between owners

and managers on decisions concerning risk" pro$ects. #n addition,

institutions ma" be better able to implement e+ective monitoring

mechanisms on managers than can individual owners, based on the

institutions% deeper resources and experiences with their own

management. The increase in institutional ownership of stock in the

>nited States and the growing activism of these large shareholder

groups ma" lead to a reduction in agenc" problems for >.S. corporations

and a more e'cient market for corporate control.

1D. )ecutive 4ompensation 4ritics have charged that

compensation to top management in the nited ;tates is simply

too high and should be cut back. For e)ample+ focusing on large

corporations+ Eay *rani of @ccidental 'etroleum has been one of

the best compensated 4@s in the nited ;tates+ earning about

< 22% million in 2DD: alone and < 8,, million over the 2DD,

2DD: period. &re such amounts e)cessive? *n ans"ering+ it might

be helpful to recognize that superstar athletes such as 7iger

Woods+ top people in entertainment such as @prah Winfrey and

Cerry Bruckheimer+ and many others at the peak of theirrespective #elds can earn at least as much+ if not a great deal

more.9ow much is too much* ho is worth more, ?arr" (llison or Tiger oods*

The simplest answer is that there is a market for executives $ust as there

is for all t"pes of labor. (xecutive compensation is the price that clears

the market. The same is true for athletes and performers. 9aving said

that, one aspect of executive compensation deserves comment. A

primar" reason executive compensation has grown so dramaticall" is

that companies have increasingl" moved to stock3based compensation.

Such movement is obviousl" consistent with the attempt to better align

stockholder and management interests. #n recent "ears, stock prices

have soared, so management has cleaned up. #t is sometimes argued


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that much of this reward is simpl" due to rising stock prices in general,

not managerial performance. Perhaps in the future, executive

compensation will be designed to reward onl" di+erential performance,

i.e., stock price increases in excess of general market increases

10 Preguntas de Fcorporativas

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