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Finance Managment

In: Business and Management

Submitted By haboobaa
Words 940
Pages 4
Chapter 1 Case “The Desert Enterprise” Pg. 21

Q1- Moving from Partnership to a corporation has many advantage and disadvantage.
The advantages of corporation are as follows: 1- Can borrow money and own property by its own name. 2- Can be a general partner or a limited partner in partnership 3- Can own stock in another corporation 4- Ownership can be easily transferred. 5- Unlimited life of corporation. 6- Limited liabilities of stockholders for corporate debt.
However, the disadvantages of corporation are as follows: 1- Complicated to form as its needs to prepare articles of incorporation and bylaws. 2- Expensive as its need huge money to form 3- Double taxation by government, in corporate level and personal level.
Q2- Many agency conflicts can be raise when hiring management team such as the management might work for their individual interest not for the interest of Stockholders. The cost of agency can be direct and indirect.
The direct agency cost is applied in the situation when the corporate expenditure benefits the management but cost the stockholder. In addition, the other agency cost is the expense raised because of the need of monitoring management actions.
In order to encourage management to work in the interest of management we suggest the following:

1- Using the managerial compensation where top mangers are given the option of buying stock in the company at barging cost. Doing that will motivate mangers to maximize the value of the company shares. 2- Controlling the company to be in the hand of Stockholders.
Q3-

Q4- Firms face a trade-off between socialresponsibility and financial performance due to increased costs from socially responsible actions which place them at an economic disadvantage compared to other firms with less social responsibility. A contrasting view is that the explicit costs…...

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