Question

1. Internal control procedures are important in every business. At what stage in the development of a business do they become especially critical? Is there one area of the business (cash, receivables, inventory) where the procedures are the most critical, and why do you think that area is the most important?

2. You are investing in a company. Would you rather invest in common stock, convertible preferred stock, non-cumulative preferred stock, or cumulative preferred stock? Please explain your choice.

3. A company can finance their company in many ways - short-term debt, long-term borrowing, selling bonds, issuing stock. What do you think is a good mix for the company to have, and why? What might influence the mix for a company?

Answer 1

solution:

1.

Inner control methods become particularly basic when the chief of a business can never again control the business through close to home supervision and direct support.

Money is the one zone of business where these systems are most significant in light of the fact that money is the most fluid resource.

Money is such a significant resource for the accompanying reasons:

Most business exchanges in the long run lead to the business accepting (money receipts) or paying (money installments).

Since money is effectively taken, satisfactory controls must be executed to guarantee that individuals with deceptive expectations are distinguished.

2.

1 Common stock

It speaks to a part of the capital of an organization simply like shares.It is a solidification of completely paid offers. Stock is a lot of offers assembled in a bundle.No distinct value.,can be of any worth.

2 Convertible favored stock

These stock are given the privilege of transformation in to value inside a predefined period or at indicated date as per the terms of issue.

3 non total favored stock

Here the unfulfilled obligations of profit don't amass. Means at whatever year organization can't cover the profit because of deficiency of benefit, these stock don't get back payments of profit out of benefits of ensuing years.

4 combined favored stock

Here the back payments of profit if any are complete forward and paid of benefits of the resulting years.

Can choose any stock as your decision.

3.

The organization ought to have a capital structure so that it ought to have enough value to settle the obligations. Also, the WACC of the firm ought to be so that it incurrs insignificant expense to get the capital. Obligation capital in the firm ought to be not exactly the value as this decreases the gaining per portion of the firm.

Elements influencing the capital blend of the organization:

Cost of capital: The expense of capital is one of the factor influencing the capital blend. The capital with less cost ought to be given the need over the capital with mind-boggling expense. The general WACC of the firm ought to be least.

Winning per share: This is additionally one of the reason influencing the capital blend. Obligation capital in the firm ought to be not exactly the value as this diminishes the procuring per portion of the firm.

Contrasting the component of the capital is likewise one of the factor affecting the capital blend. The capital which benfits the most ought to be picked for the firm.

Business chance: this impacts so that the more dangerous the business is progressively more hazardous capital structure would be there. Means this will influence the obligation value proportion of the firm with more obligation then value.

Duty benifits: Considering this as one of the factor as obligation capital decreases the expense liablity of the firm as the obligation capital can lessen some salary from assessments.

Development pace of the firm likewise impacts the capital blend. The more development the better obligation value proportion.