Chapter 1 Corporate Finance and the Financial Manager  Answers to Chapter 1 Concept Check Questions 1. What are the advantages and disadvantages of organizing a business as a corporation? Advantages Disadvantages Corporation responsible for obligations More expensive to set up Not responsible for obligations of owners Double taxation More borrowing power/funding Articles of incorporation 2. What is a limited liability partnership (LLP)? How does it differ from a limited partnership? An LLP is similar to a general partnership in that the partners can be active in the management of the firm, and they do have a degree of unlimited liability. The limitation on a partner‘s liability is only in cases related to actions of negligence of other partners or those supervised by other partners. In all other respects, including a particular partner‘s own negligence or the negligence of those supervised by the particular partner, that partner has unlimited personal liability. Limited partners, however, have limited liability—that is, their liability is limited to their investment. Their private property cannot be seized to pay off the firm‘s outstanding debts. 3. What is an income trust? Which type of trust still gets preferential tax treatment after 2011? Canada Revenue Agency allows an exemption from double taxation for certain flow-through entities where all income produced by the business flows to the investors and virtually no earnings are retained within the business. This type of entities are called income trusts and they come in three forms, such as a business income trust, an energy trust, and a real estate investment trust (REIT). Income trusts formed before November 2006 are not taxed at the business level until 2011. REITs will continue to have no tax at the business level beyond 2011, but the other forms of income trusts are now taxed. 4. What are the main types of decisions that a financial manager makes? The financial manager has three main tasks which are described below: 1. Make investment decisions – capital budgeting investment opportunities 2. Make financial decisions – balance between debt and equity and the capital structure 3. Management of the short-term cash needs – cash planning for the firm.