Critical Thinking Questions

In: Business and Management

Submitted By thechris77
Words 661
Pages 3
Christopher O’Leary
Pgs 19-20 #1-7, 10, 14

1. The three types of financial management decisions are capital budgeting, capital structure, and working capital management. Capital budgeting is the process of planning and managing a firms long-term investments and an example of this would be an education. Capital structure is the mixture of debt and equity maintained by a firm and an example would be partnering with a venture capitalist, by selling a percentage of the company to receive funding for these long term investments. Working capital management is a firms short-term assets and liabilities or how the firm funds its everyday to day activities, and an example would be a firm paying the wages of the employees.

2. The primary disadvantages are that sole proprietorships and partnerships can have unlimited liability for business debts, the business has a limited lifetime, there is a lot of difficulty when attempting to transfer ownership of the business, and the business will have difficulty growing due to the inability to raise cash for these investments. Sole proprietorships and partnerships have an advantage over corporations because they are very simple to form, and these businesses are not considered legal people so, the profits of the business are only taxed once.

3. Corporations have a disadvantage as they are vulnerable to double taxation because the corporation is a legal person, allowing the government the tax their corporate profits twice. Two advantages of a corporation would be that the ownership is easily transferred through shares of the corporation, giving the corporation an unlimited life span, and since the corporation borrows money in its own name, the stockholders have limited liability and can only lose the money they invested in the corporation.

4. The Chief Financial Officer is directly responsible for the actions of…...

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