Fin 515 Week 1
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FIN 515 – Homework Week 1
Sami Ghazal
Chapter 1:
1.1 The main difference between the corporation and other types of businesses is the separation between the owner and the business. The corporation is considered a separate entity and that is why it is taxed separately resulting in double taxation at the corporate level and then at the individual level.
1.2 Limited liability means that the shareholders of a corporation are only liable for the amount they contribute to the business and are not responsible for the obligations or debts of the corporation.
1.3 Both corporations and LLCs provide the shield of limited liability to the owners. In addition, limited partners in a limited partnership also enjoy that shield unlike the general partners that have unlimited liability.
1.4 The advantages of a corporation include limited liability of the owners, infinite life and the ability of liquidating their investment faster especially if the firm is publically listed. On the other hand, the disadvantages include double taxation at the corporate and individual level and separation of management and ownership where the stockholders do not manage the corporation.
1.5 An S corporation is treated like an LLC where shareholders only pay taxes at the individual level but to qualify as an S corporation the company can not have more than a 100 shareholders and can not have any international non US citizen investors.
1.6 Corporate Tax= 2 – (2*0.4) = $1.2
Individual Tax = 1.2 – (1.2*0.3) = $0.84 Remaining Income
1.7 Individual Tax = 2 – (2*0.3) = $1.4 Remaining Income
Chapter 2
2.8 a. 2009 Market Cap = 10.5 Billion Shares * $10.8 = $113.4 Billion 2012 Market Cap = 10.6 Billion Shares * $17 = $180.2 Billion Change over the period = $66.8 Billion b.
