An Introduction to Financial Management

Goal of the Firm

1) Profit Maximization? this goal ignores:

a.       TIMING of Returns

b.       UNCERTAINTY of Returns

2) Shareholder Wealth Maximization? this is the same as:

a) Maximizing Firm Value

b) Maximizing Stock Price

Legal Forms of Business

1)  Sole Proprietorship

•         A business owned by a single individual.

•         Owner maintains title to the firm’s assets.

•         Owner has unlimited liability.

2)  Partnership

            Similar to a sole proprietorship, except that there are two or more owners.

2a)  General Partnership

            All partners have unlimited liability.

2b)  Limited Partnership

•         Consists of one or more general partners, who have unlimited liability, and

•         One or more limited partners (investors) whose liability is limited to the amount of their investment in the business.

3)  Corporation

•         A business entity that legally functions separate and apart from its owners.

•         Owners’ liability is limited to the amount of their investment in the firm.

•         Owners hold common stock certificates, and ownership can be transferred by selling the certificates.

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