Finance For Decision Making Final Exam

Finance for decision making final
exam
DONE BY :HARCHE MOHAMED MOUNIR
Part1 :
A) CORPORATION :
Partners are concerned about legal liabilities the
business might confront.
Corporation would limit the liabilities of members only
to the capital contributed.
This choice also affords the three students at IMAA-
Algiers opportunity of limited
liability against debts and lawsuits filed against the
company. This means that any
loans, credit cards, mortgages or revolving credit with
vendors, are the sole
responsibility of the company;
B) Corporation:
Corporations may be private or public, and may or

may not have stock that is
publicly traded. They may raise significant funds to
finance their operations or new
investments by raising capital through the sale of stock
or the issuance of bonds.
Those who buy the stock become the owners or
shareholders,of the firm
Therefore; it would be easier to raise significant funds
with a corporation than
other forms of business. This form of business model
by Abdullah and Khadidja
would afford them platform to raise significant funds
in order to expand their
operations.
C) Partnership:
A partnership is a form of business where two or more

people come together to
start a business by sharing ownership, as well as the
responsibility for managing
the company and the income or loses the business
generate. They do not require
large capital and the risk is minimal. Thus, Sherif,
Mariam and Kiara can go into
general partnership or limited partnership. All partners
are actively involved in the
business’s operations. The advantages of these three
people coming together for
this kind of business organization are numerous: fairly
easy to set up and maintain
overtime; partners can pool their resources to fund
selling of local products over
the internet; partners can share the workload and the
rewards of the business’s
success; they can share responsibilities of running the
business’s as well as their
contributions. Another takeaway here is that the trios
have been friends for long
time and could vow for their behavior as they could be
liable for their actions as
they relate to the business.
D) Sole Proprietorship:
He wants to have control over the business. For Idriss

to become a sole proprietor
of an artificial respiration device is relatively simple
compare to other business
structures. It can rapidly enable him to begin trading;
the requirements for record
keeping are far more straightforward than other
business structures. He can make
all operational decisions and are solely responsible for
raising business finance.
He may be able to raise/access business loans from
banks or other sources or
overdrafts to kick-start the business. In this regard,
since his intention is to have
control over the business, he can also raise capital
through: i) ask friends and
family to invest in the firm; ii) Seek out angel

investors; iii) Apply for a business
administration loan which offers micro-loan program
and a common option for
starts-up and it offers low interest rates; iv) Seek for
business grants is another
ideal for a sole proprietorship and are not basically
based on credit worthiness and
they never have to be paid back; and v) Open a
business line of credit, this is
another option for Idriss if all other options fails. A
business credit card or line of
credit may be the only remaining option to raise money
as a sole proprietorship.
Part2 :
A) calculating current ratio:
Current ratio= current assets/ Current
liabilities
Current assets = 25 000 + 30 000 + 5 000= 60
000
Current liabiliies = 20 000 +10 000 = 30 000
Current ratio= 60 000/30 000= 2
Calculating working capital :
Working capital= Current asset – Current
liabilities
Working capital=60 000 – 30 000= 30 000
B) calculating the new current ratio:

Current asset = 5 000 + 30 000 +5 000 =
40 000
Current liabilities = 10 000
The new current ratio = 40 000 / 10 000= 4
Calculating the new working capital:

Working capital = 40 000 – 10 000 = 30 000
C)Advantages :
Current ratio and working capital provide us with
short term financial
strength of the company.
They Also provide us with how quickly a company
can convert inventory
and other current assets to cash.
They provide us with working capital management
and/or requirement of the
firm;
It enables you more flexibility and helps you to
satisfy your customers’
Order .
It enables you expand your business and invest in
new products as well as
services;
It gives goodwill to the company and helps in
running business smoothly.
This is one of the biggest advantages of current
ratio as it helps running the
company effectively and smoothly;
It also helps the company to bargain. In business
cash is king and a
company which has enough working capital can

bargain and get things on
its terms rather than others dictating the terms to
the firm;
It helps to evade interruptions in operations. Since
working capital
management involves the use of ratio analysis, it
thus helps managers in
planning and executing business operations in the
most efficient way.
Disadvantages :
Equal change in assets and liabilities can change the
ratio but cannot
change the value of working capital.
Negative working capital range from paying your
supplies late to the threat
of bankruptcy/liquidation;
Inventory valuation methods impact the value of
the ratio and the value of
the working capital.
Unstable ratios in seasonal variation periods;
The ratio is insufficient for analysis on standalone
basis;
This strategy takes only monetary factors into
account. Monetary items like
the value of debts receivables, the value of finished
goods etc are the basic
determinants while implementing the strategy.
Non-Situational. Another disadvantage of working
capital management
policy is that it is not situational in nature. The
strategy does not
acknowledge sudden changes in the market
conditions as it is based on
past events and figures;
Based On data. Since working capital management
operates around data, it
is the key soul of any working capital management.
Data would include
every minute details about the components of
working capital.
Part 3 :
Yes, the company should go ahead to do.
By investing $1 million more, the firm would
be able to complete development of
the product and earn revenue = $3 million.
If it would cost $1 million to finish

development and make the product, the
company
should go ahead and do so. If it quit the
development, it would lose $5 million.
However, if it pays $1 million, it would gain
back $3 million.

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Finance for decision making final

Corporations may be private or public, and may or

A partnership is a form of business where two or more

He wants to have control over the business. For Idriss

family to invest in the firm; ii) Seek out angel

B) calculating the new current ratio:

Calculating the new working capital:

company which has enough working capital can

If it would cost $1 million to finish

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