Please submit your complete assignment in the course room by the due date. Chapter 1 Questions (1-1) Define each of the following terms: a. Limited partnership-a partnership in which limited partners’ liabilities, investment returns, and control are limited; general partners have unlimited liability. Limited liability partnership- (ALP) combines the limited liability advantage of a operation with the tax advantages of a partnership. . Stockholder wealth minimization- The decision making process of ensuring that the company is profitable and is making healthy long term decision that will increase and protect the wealth of its stockholders. C. Money market (financial market for securities that will mature within a year or less); capital market (financial market for securities that have a long term maturity, this also includes corporate stocks); primary market (market in which securities are sold for the first time ii:loop’s); secondary market (the market in which securities are resold or traded between the public after and PIP) e.
Private markets (market in which transactions occur directly between two parties, such as a band and a borrower); public markets (Market in which transactions occur on the large basis and are usually under contract by a third party acting as an intermediary. ) g.
Mutual fund (a collective effort done by a corporation when collected funds are used by the company and invested into stocks and other securities, and dividends and others returns are split between the investors of the dual fund) ; money market fund- (a mutual fund that invests in short term investments offering check writing privileges because of its high liquidity, ‘e: investment checking) h. Physical location exchanges- brick and mortar locations where exchanges take place like the NYSE ; computer/telephone networks-cyber network and telephone network where trading is done without face to face.
Like NASDAQ (1-2) What are the three principal forms of business organization? What are the advantages and disadvantages of each? A sole proprietorship- advantages(easily formed, lower taxation, and less regulations), strangeness (unlimited liability, difficult attainment of funding, limited life of business) Partnership- holds the same advantages and disadvantages of proprietorship, with the exception that liability and tending is split between two or more parties.
Corporation- unlike the other two entities is separate from the individuals. Advantages( unlimited life, limited liability, transferability), disadvantages (double taxation, highly regulated and, much more intricate in its functions than the first two. ) (1-3) What is a firm’s fundamental, or intrinsic, value? What might cause a firm’s intrinsic value to be different from its actual market value? A firm’s fundamental or intrinsic value is basically its raw worth based on its estimated stock valuation.
Its fundamental worth and its market worth can differ when analysis are done and find that future value of the business will not be favorable in reference to revenues, stock worth etc. (1-4) Edmund Enterprises recently made a large investment to upgrade its technology. Although these improvements won’t have much of an impact on performance in the short run, they are expected to reduce future costs significantly. What impact will this investment have on Edmund Enterprise’s earnings per share this year?
What impact might this investment have on the company’s intrinsic value and stock price? In the short run the firm’s earnings per share will decrease because the purchase of the improvements will lower its net income seeing as the payoff is in the future and less cash will be on hand. The future intrinsic value and stock price will be higher as it will cause them to be more efficiently and we can only infer that it will cause the profit line to grow and stock price along with it. -5) Describe the ways in which capital can be transferred from suppliers of capital to those who are demanding capital. Capital can be transferred in supply and demand by direct transfer like an initial public offering when a company sells stocks to the public. Similarly a business can sell their stock to an investment back which then offers these to the public. Money market securities is a another example which uses financial intermediaries to accomplish its tasks. 1-6) What are financial intermediaries, and what economic functions do they reform? Financial Intermediaries are the middle men in the arena of finance. They match lenders with borrowers and handle much of the footwork in between. They can take on many forms such as commercial banks, credit unions, savings and loans amongst others. They help the economy by funneling the surplus of funds to those with a deficit in a mutually beneficial relationship. (1-7) Is an initial public offering an example off primary or a secondary market transaction?
An initial public offering is a primary market transaction (hence the name initial) where stocks are taken ownership outside of the company for the first time. Any transactions there after happen in the secondary market. (1-9) Identify and briefly compare the two leading stock exchanges in the United States today. The two leading stock exchanges in the US are the NASDAQ is completely functioning electronically whereas NYSE still holds much of it productivity on the face to face bases. The NYSE caters to many of the large name businesses while the Nasdaq is used by many small businesses as well.