Bussiness Regulation Simulation
Felix Tapia
University of Phoenix
Puerto Rican Business Law – LAW/531PR
Israel Camacho Alicea June 4, 2013

Financing decisions determine how a firm will raise capital. Examples of financing

decisions include securing a bank loan or selling debt in the public capital markets.

Capital budgeting involves deciding which productive assets the firm invests in, such

as buying a new plant or investing in the renovation of an existing facility.

Financial managers should select a capital project only if the value of the projects

expected future cash flows exceeds the cost of the project. In other words, firms

should only make investments that will increase their value, and thus increase the

stockholders’ wealth. Working capital management is the day-to-day management

of a firm’s short-term assets and liabilities. Working capital can be managed by

maintaining the optimal level of inventory, managing receivables and payables,

deciding to whom the firm should extend credit, and making appropriate investments

with excess cash. The answer that does not pertain to corporations is: c. Are the

easiest type of business to form. The three main components of an executive

compensation package are: base salary, bonus based on accounting performance

and compensation tied to the form’s stock price.

Financial managers are concern with three fundamental decisions when running a

Business. The first one is the Capital budgeting decisions which identifies the

productive assets the firm should buy. Secondly the Financial decisions which

determine how the firm should finance and pay for assets and the last one Working

Capital Management decision that works to determine how day to day financial

matters should be managed so that the firm can pay its bills and how surplus cash

should be invested.

Double taxation occurs when earnings are taxed twice.

The owners of a corporation are subject to double taxation first at the corporate

level when the firm’s earning are taxed and then again at personal level when the

dividends they receive are taxable.

Two business structures are often preferred for small businesses, since they avoid this double taxation burden: the LLC (limited liability company) and S Corporation. With these business structures, the company is taxed more like a sole proprietor or a partnership than as a separate entity, like the C Corporation.
Recent regulatory changes that are designed to reduce agency costs. The most

important changes resulted from the Sarbanes-Oxley Act, passed by Congress in

2002. The act was aimed at reducing agency costs, promoting ethical conduct and

improving the integrity of accounting reporting system.

Th e two basic sources of funds for all businesses are debt and equity.
Net working capital is a measure of a fi rm’s ability to meet its short-term obligations as they come due. One way that fi rms maintain their liquidity is by holding more current assets.

Th e mix of debt and equity on the balance sheet is known as a fi rm’s capital structure.
Th e term capital structure is used because long-term funds are considered capital, and these funds are raised in capital markets—fi nancial markets where equity and debt instruments with maturities greater than one year are traded.

A partnership consists of two or more owners who have joined together legally to manage a business. About 10 percent of all businesses in the United States are organized in this manner. To form a partnership, the owners enter into an agreement that details how much capital each partner will contribute to the partnership, what their management roles will be, how key management decisions will be made, how the profi ts will be divided, and how ownership will be transferred in case of specifi ed events, such