1-7. Using the following criteria, specify the legal form of business that is favored: (a) organizational requirements and costs, (b) liability of the owners, (c) the continuity of the business, (d) the transferability of ownership, (e) management control and regulations, (f) the ability to raise capital, and (g) income taxes.

1-8. There are a lot of great business majors. Check out the Careers in Business Web site at www.careers-in-business.com. It covers not only finance but also marketing, accounting, and management. Find out about and provide a short write-up describing the opportunities investment banking and financial planning offer.

1-9. Like it or not, ethical problems seem to crop up all the time in finance. Some of the worst financial scandals are examined at http://projects.exeter.ac.uk/RDavies/arian/scandals/classic. html. Take a look at the write-ups dealing with The Credit Crunch, The Dot-Com Bubble and

Investment Banks, and Bernard L. Madoff Investment Securities. Provide a short write-up on these events.

1-10. We know that if a corporation is to maximize shareholder wealth, the interests of the managers and the shareholders must be aligned. The simplest way to align these interests is to structure executive compensation packages appropriately to encourage managers to act in the best interests of shareholders through stock and option awards. However, has executive compensation gotten out of control? Take a look at the Executive Pay Watch Web site at www.aflcio.org/corporatewatch/paywatch to see to whom top salaries have gone (click on 100 Highest-paid CEOs on the right-hand side of the page). What are the most recent total compensation packages for the head of Oracle (ORCL), Home Depot (HD), Disney (DIS), and ExxonMobil (XOM)? (Hint: youll want to look in the CEO Pay Database in the Executive Pay Watch.)

Mini Case

The final stage in the interview process for an assistant financial analyst at Caledonia Products involves a test of your understanding of basic financial concepts. You are given the following memorandum and asked to respond to the questions. Whether you are offered a position at Caledonia will depend on the accuracy of your response.

To: Applicants for the position of Financial Analyst

From: Mr. V. Morrison, CEO, Caledonia Products

Re: A test of your understanding of basic financial concepts and of the corporate tax code

Please respond to the following questions:

a. What is the appropriate goal for the firm and why?

b. What does the riskreturn trade-off mean?

c. Why are we interested in cash flows rather than accounting profits in determining the value of an asset?

d. What is an efficient market and what are the implications of efficient markets for us?

e. What is the cause of the agency problem and how do we try to solve it?

f. What do ethics and ethical behavior have to do with finance?

g. Define (1) sole proprietorship, (2) partnership, and (3) corporation.