Running head: WEEK ONE ASSIGNMENT

Week One Assignment

Alexei Naidenov

Tiffin University
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Week One Assignment

(1-1) Define each of the following terms:

a. Limited partnership; limited liability partnership:

A limited partnership is a partnership where the partners have limited liabilities,

investment returns, and control. In compare the normal partners have unlimited

liability and control. A limited liability partnership (LLP) or also called sometimes

limited liability company (LLC) is a combination tax advantages of an partnership

and limited liability advantages of a corporation.

b. Stockholder wealth maximization:

Stockholder wealth maximization means that the managers try to maximize the profit

so the shareholders earn a good return.

c. Money market; capital market; primary market; secondary market

“Money market are financial market for debt securities with maturities of less than

one year(short-term)” (Ehrhardt, 2014, p.781)

“Capital market are the financial markets for long-term debt and corporate stocks.

The NYSE is an example of a capital market.” (Ehrhardt, 2014, p.771)

“Primary market are markets in which newly issued securities are sold for the first

time” (Ehrhardt, 2014, p.784)

“Secondary market are markets in which securities are resold after unitial issue in the

primary market. The NYSE is an example” (Ehrhardt, 2014, p.787)

d. Private markets; public markets

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“Private markets are markets in which transactions are worked out directly between

two parties and structured in any manner that appeals to them” (Ehrhardt, 2014,

p.784)

“Public markets are markets in which standardized contracts are trade on organized

exchange. Securities that are issued in public markets, such as common stock and

corporate bonds, are ultimately held by a larger number of individuals” (Ehrhardt,

2014, p.784)

e. Mutual fund; money market fund

“Mutual fund a corporation that sells shares in the fund and uses the proceeds to buy

stocks, long-term bonds, or short-term debt instruments” (Ehrhardt, 2014, p.781)

“Money market fund is a mutual fund that invests in short-term debt instruments and

offers investors check-writing privileges; thus it amounts to an interest-bearing

checking account” (Ehrhardt, 2014, p.781)

f. Physical location exchanges; computer/telephone networks

A physical location exchanges is market where buyer and seller meet in face to face

for example is the NYSE.

Computer/telephone networks such as NASDAQ are markets where buyer and seller

get in connect over different hardware like computers, smartphones etc.

(1-2) What are the three principal forms of business organization? What are the

advantages and disadvantages of each?

The three principal forms of business organization are proprietorship, partnership, and

corporation. Proprietorship are easy and inexpensive to formed, has only few government

regulations, and the income is not subject to corporate taxation but is taxed to the owner’s
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personal income. But it has also disadvantages like to get new money for growing the

businesses, the life time of this business is limited to the life time of the owner, and has

unlimited personal liability for the business debts.

Partnership has following advantages its easy to establish, with more than one owner it is

easier to found more capital, and with partners is easier to be cost effective because they

can specialize in different aspects of the business. But partnership have also

disadvantages partners are also liable for actions of the other partners, partnership has

also limitations to growth for a bigger business.

The advantages of a corporation are limited liability, source of capital, ownership

transfers, and no limited of the life time of a corporation. The disadvantages of a

corporation are double taxation, excessive tax fillings.

(1-3) What is a firm’s fundamental, or intrinsic, value? What might cause a firm’s

intrinsic value to be different from its actual market value?

The firm’s fundamental and intrinsic value is the firm’s actual value which based on all

relevant information expect the future cash flow. To determinate the actual market value

it’s need to analysis the firm’s finical information such as income statement, balance

sheet, and cash flow with including other variables such as earning growth, market share,

revenue growth, financial reserve.

(1-4) Edmund Enterprises recently made a large investment to upgrade its

technology. Although these improvements won’t have much of an impact on

performance in the short run, they are expected to reduce future costs significantly.

What impact will this investment have on Edmund Enterprises’s earnings per share
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this year? What impact might this investment have on the company’s intrinsic value

and stock price?

The impact on Edmund Enterprises earnings per share this year decrease because the

company make a large investment in upgrading their technology this will cause bigger

expenses than normal. But this investment will probably increase the stock price because

the company will have significantly cost reduction with their new technology. The

intrinsic value would be increase because of the expectation that the investment will

increase the future cash flow through the cost savings. Out of this situation investors will

have a good feeling and expectation of the company and as a result the intrinsic value and

stock price will growth.

(1-5) Describe the ways in which capital can be transferred from suppliers of capital

to those who are demanding capital.

There are few ways how to transferred the capital one way is it to make a direct business

transfers like selling stocks or bonds directly to savers. Another way is to go over an

investment bank or through a financial intermediary for this transfers.

(1-6) What are financial intermediaries, and what economic functions do they

perform?

Financial intermediaries are financial institution like banks, insurance company,

investment banks or pension funds. A financial intermediary offers individuals or firms to

save or borrow money. For example, if you need to borrow money you can do it by your

own and try to find somebody who will give you a lone. This will be time consuming

much easier is it then to go to a bank or a institutions to get a loan or to invest money.

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(1-7) Is an initial public offering an example of a primary or a secondary market

transaction?

The initial public offering (IPO) is a primary market transaction because IPO deals with

securities which are first hand securities. First hand securities are traded on the primary

market.

(1-8) Differentiate between dealer markets and stock markets that have a physical

location.

The stock markets that has physical locations own a building and allows limited number

of people to trade on their floors, and has an elected governing body. “The dealer market

system consists of (1) the relatively few dealers who hold inventories of these securities

and who are said to "make a market" in these securities; (2) the thousands of brokers who

act as agents in bringing the dealers together with investors; and (3) the computers,

terminals, and electronic networks that provide a communication link between dealers

and brokers”.( Brigham, 2016, p.42)

(1-9) Identify and briefly compare the two leading stock exchanges in the United

States today.

There is the NYSE this is a physical location stock exchange. The NYSE is merged with

the Euronext and they have larger companies in their portfolio. The NASDAQ is a no

physical location, has invested in the London stock exchange and other international

markets.
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References

Brigham, E. F. (2016). Fundamentals of financial management: Concise edition.

Ehrhardt, M. C., & Brigham, E. F. (2014). Corporate finance: A focused approach.