SchoolSimon Fraser University
Course CodeBUS 320
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Chapter 1 some answers of critical questions
a) Unlimited liability
b) Limited life
c) Difficulty in transferring ownership
d) Hard to raise capital funds
a)Simpler( less regulations)
b)Control (owners are also managers)
c)Personal tax rates are better than corporate tax rates
6. In the corporations, shareholders are the owners of the firm. Shareholders elect the
directors of the corporation, who in turn, hire the firm’s management. The separation
of ownership from control in the corporate form of the organization is what causes
agency problem. Management may act in its own/someone else’s interest rather than
those of shareholders. If such things occur, they may contradict the goals of
maximizing the share price of the equity of the firm.
9. Non-profit organizations frequently pursue social/political missions. So many
different goals are attainable. One goal is minimization i.e. provide whatever goods or
service at the lowest cost for society.
A better approach may be to observe that even for a non-for-profit business has equity.
Thus one answer is that the appropriate goal is to maximize the value of the equity.
11. We could argue that in market economy, all of these things are priced. This is thus
an optimal level of, for example, ethical/illegal behavior, and the framework of stock
valuation includes these, or we could argue that these non-economic phenomena, and
can be the best handled through political process.
13 The goal of management should be to maximize the share price for current
shareholders if management believes that it can improve the profitability of the firm
so that the share price will exceed $35, then they should reject the offer from the
outside company. If management believes that this bidder or other unidentified bidder
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