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![]() We are heartened by its success and impact on the profession through shaping future practitioners. As any textbook writer will tell you, achieving this level of success requires a substantial amount of help. Van Horne Fundamentals of Financial Management (13th Edition) James C. Author Waqas Tariq. Simple theme. Theme images by bluestocking. What principalagent conflicts do you anticipate Suppose instead that you work for the apartment company. All solutions manual and test bank in soft copy Adobe Acrobat Reader (PDF) formatWord format.Docx or zip format. Corporate Finance, 3E Jonathan Berk, solutions manual and test bank. The Corporation 1-1. What is the most important difference between a corporation and all other organizational forms A corporation is a legal entity separate from its owners. What does the phrase limited liability mean in a corporate context Owners liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm. Which organizational forms give their owners limited liability Corporations and limited liability companies give owners limited liability. Limited partnerships provide limited liability for the limited partners, but not for the general partners. What are the main advantages and disadvantages of organizing a firm as a corporation Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control 1-5. Explain the difference between an S corporation and a C corporation. C corporations must pay corporate income taxes; S corporations do not pay corporate taxes, but must pass through the income to shareholders to whom it is taxable. S corporations are also limited to 75 shareholders and cannot have corporate or foreign stockholders. You are a shareholder in a C corporation. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40 and the personal tax rate on (both dividend and non-dividend) income is 30. How much is left for you after all taxes are paid First, the corporation pays the taxes. Once the dividend is paid, personal tax must be paid, which leaves 1.20 (1 0.3) 0.84. ![]() Repeat Problem 6 assuming the corporation is an S corporation. These stockholders must then pay personal income tax on the distribution. So they are left with 2 (1 0.3) 1.40. BerkDeMarzo, Corporate Finance, Third Edition 2014 Pearson Education, Inc. You have decided to form a new start-up company developing applications for the iPhone. Give examples of the three distinct types of financial decisions you will need to make. As the manager of an iPhone applications developer, you will make three types of financial decisions. You will make investment decisions such as determining which type of iPhone application projects will offer your company a positive NPV and that your company, therefore, should develop. Corporate Finance Solution Berk How To Fund YourYou will make the decision on how to fund your iPhone application investments and what mix of debt and equity your company will have. You will be responsible for the cash management of your company, ensuring that your company has the necessary funds to make investments, pay interest on loans, and pay your employees. When a pharmaceutical company develops a new drug, it often receives patent protection for that medication, allowing it to charge a higher price. Explain how this public policy of providing patent protection might help align the corporations interests with societys interests. Without patent protection, the developer of the drug would be forced to lower prices to compete with generic manufacturers. Because this price competition would lower expected future profits, the developer would be willing to spend much less in RD to develop the drug initially, and drug innovation would be curtailed. Alternatively, by allowing the drugs developer to earn higher profits that are commensurate with the value of the drug to society, drug developers will find it in their best interests to spend more on RD, and drug innovation is enhanced. Thus, patent protection can align the corporations and societys interests and provide for more efficient spending on drug RD. Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated to act this way Shareholders can do the following. Ensure that employees are paid with company stock andor stock options. Ensure that underperforming managers are fired. Write contracts that ensure that the interests of the managers and shareholders are closely aligned. Mount hostile takeovers. You, the renter, can be viewed as an agent while the company that owns the apartment can be viewed as the principal.
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