BUSI 2503 Study Guide - Final Guide: Opportunity Cost, Federal Direct Student Loan Program, Foreign Exchange Market
29 Mar 2020
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Lecture 1 practice questions-solution: a firm might cut its labour force dramatically which could reduce immediate expenses and increase profits in the short term. Similarly, a firm can boost profits over the short term by using less costly materials even if this reduces the quality of the product. The moral of these examples is that, because stock prices reflect present and future profitability, the firm should not necessarily sacrifice future prospects for short-term gains. The key advantage of separating ownership and management in a large corporation is that it gives the corporation permanence. The corporation continues to exist if managers are replaced or if stockholders sell their ownership interests to other investors. The corporation"s permanence is an essential characteristic in allowing corporations to obtain the large amounts of financing required by many business entities. Both public and private corporations are distinct legal entities, separate from its owners (ie. , its shareholders).
