What are the main advantages and disadvantages of organizing a firm as a corporation?

Week1 Written Assignment Questions
1. What are the main advantages and disadvantages of organizing a firm as a corporation?

2. In recent years, top managers have been given large packages of options, giving them the right to buy stock in the firm at a fixed price. Will these compensation schemes make managers more responsive to stockholders? Why, or why not? Are lenders to the firm affected by these compensation schemes?

3. Classify each of the following items as an inflow (I) or an outflow (O) of cash or as neither (N). (Tip: You can use class notes p.24-30 to help you identify which is cash inflow or cash outflow).
Item Charge ($) Item Charge ($)
Cash +600 Accounts receivable -900
Accounts payable -1,200 Net profits +700
Notes payable +800 Depreciation +200
Long-term debt -2,500 Repurchase of stock +500
Inventory +400 Cash dividends +300
Fixed assets +600 Sale of stock +1,300
4. Assume current liabilities are $10,000, the current ratio is 2.0, and the quick ration is 1.0. How much does the firm have in inventory and other assets and how much does the firm have in current assets?

5. Using the financial statements and stock price information of Mydeco Corp in the next page to answer following questions:
a. How did Mydeco’s accounts receivable days change over this period?
b. How did Mydeco’s inventory days change over this period?
c. Based on your analysis, has Mydeco improved its management of its working capital during this time period?
d. Compare accounts payable days in 2012 and 2016.
e. Did this change in accounts payable days improve or worsen Mydeco’s cash position in 2016?

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