Introduction

Question 1

Shareholders main goal

Answer 1

To maximise firm value

Question 2

5 Advantages to a corporation

Answer 2

Limited liability
Unlimited life
Separation of ownership and management
Easy transfer of ownership
Easier to raise capital

Question 3

3 Disadvantages of a corporation

Answer 3

Separation of ownership and management
Greater regulation
Double taxation of dividends

Question 4

3 advantages of a Sole proprietorship

Answer 4

Easy to start
No need to consult others when making decisions
Taxed at personal tax rate

Question 5

2 Disadvantages of a sole proprietorship

Answer 5

Unlimited personal liability
Life of business limited to life of owner

Question 6

3 Advantages of a partnership

Answer 6

Relatively easy to start
Taxed at personal tax rate
Access to funds from multiple sources

Question 7

3 Disadvantages of a partnership

Answer 7

Partners jointly share unlimited liability
Ends when a partner pulls out / dies
Difficult to raise cash

Question 8

Value of Firm formula

Answer 8

Value of debt + Value of equity

Question 9

What is the agency problem

Answer 9

Goal of financial management is to maximise shareholder wealth, the managers might not always act in the interest of the shareholders. Needs perfect monitoring to eliminate

Question 10

G20/OECD principles for Equitable treatment of shareholders

Answer 10

Minority shareholders who are too weak to influence management must be protected

Question 11

G20/OECD principles for The role of stakeholders

Answer 11

There must be a structure to allow stakeholders to communicate their concerns

Question 12

G20/OECD principles for Disclosure and transparency

Answer 12

The accounting and audit functions of the firm should be of the highest quality

Question 13

G20/OECD principles for The responsibilities of the board

Answer 13

Boards must run a firm in an independent fashion. Structures must be in place to evaluate management performance