Mini Case Financial Ethics and Company Valuations
Kent Spencer
Finance 550
Professor Ahn
May 12, 2013
Mini Case
Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre. a. Why is corporate finance important to all managers? It is important to managers because it determines what limitations managers have to expand operations, make improvements to the corporation and its ability to raise capital. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. A company may begin as a sole proprietorship which has the ease of formation and reporting, but has the risk of unlimited liability, lack of continuity and the inability to raise capital. A partnership allows for more than a single participant, but it still has limitations on raise capital and the exposure of unlimited liability, unless a limited partnership. The hybrid Limited Liability corporation allows sole proprietors and partnership the ability to have the ease of formations of the aforementioned types of company, but offer some of the benefits of a corporation without the disclosures and filings. An LLC may usually have two of the characteristics of a corporation such as limited liability and perpetuity. The public corporation is the form of business that
Finance 550
Professor Ahn
May 12, 2013
Mini Case
Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle DellaTorre, a professional tennis player who has just come to the United States from Chile. DellaTorre is a highly ranked tennis player who would like to start a company to produce and market apparel she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. DellaTorre is very bright, and she would like to understand in general terms what will happen to her money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre. a. Why is corporate finance important to all managers? It is important to managers because it determines what limitations managers have to expand operations, make improvements to the corporation and its ability to raise capital. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. A company may begin as a sole proprietorship which has the ease of formation and reporting, but has the risk of unlimited liability, lack of continuity and the inability to raise capital. A partnership allows for more than a single participant, but it still has limitations on raise capital and the exposure of unlimited liability, unless a limited partnership. The hybrid Limited Liability corporation allows sole proprietors and partnership the ability to have the ease of formations of the aforementioned types of company, but offer some of the benefits of a corporation without the disclosures and filings. An LLC may usually have two of the characteristics of a corporation such as limited liability and perpetuity. The public corporation is the form of business that