Questions and Problems – Chapter 1 (Odd numbers)
1. Capital: What are the two basic sources of funds for all businesses?
- The two basics are debt and equity
3. Cash flows: Explain the difference between profitable and unprofitable firms.
- The profitable firm has a positive income and can generate cash throughout their liquid assets; also, they can cover expenses, taxes, debt thanks to their income ratio.
-Unprofitable business can’t generate cash due to their lacks of assets, excessive debt due to the lack of a business plan; as a result, a bankrupt can be the next option to liquidate the firm or restructure their financial obligations.
7. Management role: What are some of the working capital decisions that a financial manager faces?
- The manager needs to ensure that the company has enough assets and cash to cover their financial obligations in order to maintain the operation of the business. The manager is going to decide when to sell their short-term assets to have more cash for more investment that can generate more profits.
9. Organizational form: What are the advantages and disadvantages of a sole proprietorship?
- The advantage:
· Minimal legal fee and the easiest to create.
· The easiest to dissolve.
· Right to all profits
- The disadvantage:
· Unlimited liability.
· Business income taxes as personal income.
· Difficulty to transfer ownership.
11. Organizational form: Who are the owners of a corporation, and how is their ownership represented?
- The stockholders or shareholder. This means that is owned by more than one person, and the corporation is responsible for their financial obligations; as a result, none of the stockholders or shareholders are responsible for the actions of the firm.
15. Finance function: What is the primary responsibility...