Financial Indvestments

1. List and briefly describe the three basic questions with which a financial manager must be concerned

the three basic questions with which a financial manager must be concerned with are capital budgeting, capital structure, and working capital management.

Capital budgeting is related to the long term investments of the company. He must be able to plan and manage the long term investments of the firm. Further, capital structure is related to the sources from which the firm will obtain its capital for long term investments. The basic question is how much will be long term debt and how much will be equity capital. Finally, he must address the working capital management needs or the need for liquid cash to meet the current liabilities. He assesses what cash should be kept at hand, the extent of credit to be granted to customers and the source of financial it.

2. If the Corporate form of business organization has so many advantages, why is it so common for small businesses to initially be formed as sole proprietorship?

the reason why it is common for small businesses to be formed as a sole proprietor and not as a corporation is that to form a corporation there are a lot of registration requirements, these are cumbersome and costly and often beyond the means of small businesses. Next, the corporation suffers from double-taxation, this is avoided by the proprietorship. Elaborate bye-laws and charter have to be created and adhered to leading to rigidness. Compliance with the legal requirements is costly and can be prohibitive for small businesses. On the other hand sole proprietorship is easy to start, run and operate, and is not subject to government interference or double taxation.

References:

sbinfocanada.about.com/.../formsofbusinessownership/Forms_of_Business_Ownership.htm sbinfocanada.about.com/od/startup/g/bizforms.htm www.mslawyer.com/businesr.htm www.jpec.org/handouts/jpec20.pdf www.scribd.com/doc/16029526/Role-of-Financial-Manager prospects.ac.uk/p/types_of_job/financial_manager.jsp www.opm.gov/Fedclass/gs0505.pdf -