Three Principal Forms Of Business Organization Case Study

1) What should be management's primary objective and how will they achieve that objective?

Management’s primary objective should be to maximize stockholders wealth. In order for management to fulfill their primary objective, several aspects are simultaneously at play. If management is forthright and provides stockholders relevant information, the market price will appropriately reflect the intrinsic price or the fundamental price. Also to generate fundamental company value, raising stock prices, management needs to create products that consumers want at a quality and price that consumers are willing to pay for. Also management needs to demonstrate the affects they have at aiding the company in generating cash flow. Three aspects can determine

What are the advantages and disadvantages of each?

The first principal form of a business organization is a sole proprietorship. One advantage of a sole proprietorship is that it is relatively easy and inexpensive to create. Another is that it is not required to comply with as many government regulations as do corporations. A third advantage is that the sole proprietorship does not need to pay corporate income taxes. Some disadvantages are that the life of the proprietorship is in direct correlation with the life of the founder, the proprietor has unlimited debt responsibility which can result in the loss of personal property, and it also may be difficult for sole proprietors to acquire the needed funding to expand and

In a primary market transaction the corporation whose securities are being traded is directly involved and in a secondary market transaction the corporation whose securities are being traded is not involved. The example given in the book was if Microsoft sold common stock in order to directly raise more capital, this would be a primary market transaction. If I were to buy Microsoft stock and then sell it to another investor, this would be a secondary market transaction, because Microsoft would receive no funds from this second transaction between me and the other investor.

4) What are the four fundamental factors that affect the cost of money?

The four fundamental factors that affect the cost of money are (1) production opportunities or turning capital into benefits, (2) time preference for consumption or the decision to consume now or save for latter, (3) risk which can lead to a higher cost of money, and (4) inflation which can also lead to a higher cost of money.

5) Distinguish between money and capital markets. Give an example of a security from each market (NOT the market