FIN 3403 Exam 1 | 100% Correct Answers | Verified | Latest 2024 Version

What are the three forms of business organization? Which one is unique as described in lectures? Describe differences between them and good and bad points related to each. - Sole Proprietorship. -Pro: easy startup, single taxation -Con: limited life, hard to raise capital, unlimited liability Partnership. -same as sole proprietorship Corporation. -Pro: limited liability, transfer ownership, easy to raise capital -Con: double taxation, separation of ownership and management A Corporation is a distinct legal entity "legally a person". What is an Agency relationship? What is an Agency cost? Which form of business organization experiences Agency problems? - The board and management are "agents" of the shareholders of a company. They have the right to legally act on behalf of the shareholders in terms of the operation of the day to day business. Agency costs: overconsumption of perquisites by management, bonuses not tied to performance, cost of creating and monitoring policies, and cost of sub-optimal decisions