Mini Case Study

Mini Case

Jorge Alfredo Corella de Cima

FIN-317

February 2, 2016

Paul Hubble

The appropriate goal for a firm is to maximize shareholders’ wealth or creating value for the firm owners (shareholders). Therefore, the financial manager’s goal is to generate wealth for the shareholders, through making decisions that will exploit the current common stock prices. This is because it not only directly benefits the company shareholders, but also offers benefits to the society given that scarce resources are put to their best use by entities competing to generate wealth (Keown, Martin, and Petty, 2011).

The risk-return trade-off is the sum of expected return or earnings for delaying consumption and the additional expected return

An efficient market is a market wherein the securities’ prices at any moment in time wholly reflect all publicly accessible information about the securities as well as their real public value. Efficient markets guide our (investors) decisions as whether to buy or sell shares of stock depending on the newly released information. Note that an efficient market is determined by the speed with which freshly released information is held into prices (Keown, Martin, and Petty, 2011).

Ethics and ethical behaviors are an essential component to long-term business and personal success. Ethical lapses are unforgivable in finance and usually result in financial scandals as those witnessed at Arthur Andersen, Enron, and WorldCom. Ethical behavior (doing the right thing) plays a big role in determining the future of a business. Unethical behavior destroys trust, which is an important component that an entity cannot function without. Ethical errors would either result in some going to jail or end of careers, thus terminating future prospects (Keown, Martin, and Petty,

On the other hand, to align their interests with those of shareholders, a compensation package can be used. For instance, managers and shareholders’ interests could e aligned through establishing bonuses, perquisites, and management stock options that are directly related to how closely their decisions match the shareholders’ interest (Brigham and Houston, 2013).

A sole proprietorship is a form of business owned by one individual wherein he or she retains the business’ assets title and is generally responsible for the liabilities suffered from limitation.

A partnership is a relationship between two or more persons joining together as co-owners to run a business with the aim of making a profit. There are two forms of partnerships: general partnership in which every partner is fully liable for the liabilities incurred by the entity; and limited partnership wherein, at least, one partner has a limited liability, confined to the individual’s capital contribution to the