Paragon International University
MBA Program
BAF 630- Corporate Finance
Assignment #1
Professor: Renato Lee
Student name: Kimhieng Keo
I. Self-Correcting Problems:
1. a) Under the sole proprietorship in the case of a large lawsuit (say, $600,000), as
Henry’s business is a sole proprietorship, he would be responsible for all liabilities.
Therefore, he would lose all his personal net worth of $467,000 in the case of a large
lawsuit. He also has responsibility for total liabilities of $90,000 in the case that the
business could not make a payment.
b) Under a partnership form, he still needs to pay for the lawsuit and pay all his net
worth as his partner’s net worth is just only $36,000. Hence, there is outstanding
amount of $564,000 ($600,000 − $36,000 = $564,000). In this case as both of them
have different net worth, the risk is not shared equally likely. Henry has bigger
responsibility.
c) Under the corporate form, Henry has limited liability. The exposure would be the
net worth of the business $173,000 ($263,000 − $90,000 = $173,000).
2. Depreciation charges for the equipment:
