Business Finance | Assignment | Answers

BUSINESS FINANCE

Financial Manager
Answer 8
One of the most significant decisions made by the financial manager of an entity is regarding the
investments of the entity. This decision deals with the timing, amount and the nature of the securities,
or the opportunities that would lead to the most efficient returns on the funds of the company. The
said decisions are crucial because of the huge amount of funds and other resources involved, and the
fact that such decisions once taken cannot be reversed (Baker and English, 2011).
Answer 9
There are two reasons which lead to all the shareholders agreeing on the same goal as the financial
manager are as follows. Firstly, the shareholders group of the company are one of the most significant
stakeholders because they have undertaken the risk of the business by the investment in the ownership
of the organisation. This further leads to the second reason that it is the core duty of the financial
manager to undertake the decisions related to finance in an organisation that lead to the maximization
of the wealth of the shareholders of a corporation. Thus, the prime goal of the finance manager is to
make efficient decisions for the owner’s money (Brigham and Ehrhardt, 2013).

The three types of firms
Answer 1
The key difference between a corporation and all other organisation forms is the fact that a
corporation has a separate legal identity created by law that is separate from its owners ( Drury,
2013). In addition, the liability of the owners is limited to the amount that is remaining unpaid on the
shares, and the personal assets cannot be held responsible in the event of the non-payment of debts by
the organisation. Further, a corporate can sue the members as well as the outsiders in its capacity.
Answer 3
The two forms of organisation that lead to the limited liability for the owners are that of the Limited
Liability Partnership and the corporation.
Answer 4
The main advantage from the point of view of the organisation is the large pooling of funds and
resources, and thus a huge capital base for strategic business conduct. The advantage from the point of
view of shareholders is the limitation of the liability and the risk distribution. Further, professional
management and trusted goodwill are yet other pros.
The key disadvantage is in the form of the numerous legal and compliance procedures involving
costs, starring from the formation, administration and the termination of the organisational form. This
is followed by the dilution of the control over the affairs, and the higher taxation rates on the
corporates, as compared to other business structures.

Answer 15
The stakeholders that would be affected with the said decision of keeping the milk in the storage room
without refrigeration are the consumers, regulators as well as the shareholders. The health of the
consumers may be affected, the health and safety regulations are breached, and ultimately the value of
the business would come down. The decision would be negative for the stakeholders as well as the
shareholders.

The stock market
Answer 17
The difference between a public and a private corporation is that while the shares of the former are
traded on a listed stock exchange, and are available to be bought and sold for the public at large; the
shares of the latter are limited to a few members only and are not publically traded.

References
Baker, H. K., and English, P. (2011) Capital Budgeting Valuation: Financial Analysis for
Today's Investment Projects. New Jersey: John Wiley & Sons Inc.
Brigham, E. F. and Ehrhardt, M. C. (2013) Financial management: Theory & practice.
Boston MA: Cengage Learning.
Drury, C. M. (2013) Management and cost accounting. UK: Springer.