Chapter 1
The Corporation
I. Chapter Outline
The following chapter outline is correlated to the PowerPoint Lecture Slides. The PowerPoint slides
are referenced in bold. Alternative Examples to selected textbook examples are also available in the
PowerPoint Lecture Slides and are also referenced in bold.
1.1 The Four Types of Firms (Slide 6)
• Figure 1.1 Chart showing types of firms (Slide 7)
• Sole Proprietorships (Slide 8)
• Partnerships (Slides 9–10)
• Limited Liability Companies (Slide 11)
• Corporations (Slides 12–14)
– Formation of a Corporation
– Ownership of a Corporation
• Tax Implications for Corporate Entities (Slide 15)
– S Corporations
1.2 Ownership Versus Control of Corporations (Slide 24)
• The Corporate Management Team (Slide 24)
• Figure 1.2 Organizational Chart of a Typical Corporation (Slide 25)
• Interview with David Viniar
• The Financial Manager (Slide 26)
– Investment Decisions
• Global Financial Crisis The Dodd-Frank Act
– Financing Decisions
– Cash Management
• The Goal of the Firm (Slide 27)
• The Firm and Society (Slide 28)
• Ethics and Incentives within Corporations (Slide 29)
– Agency Problems
• Global Financial Crisis The Dodd-Frank Act on Corporate Compensation and Governance
– The CEO’s Performance (Slide 30)
– Corporate Bankruptcy (Slide 31)
Berk/DeMarzo • Corporate Finance, Fourth Edition, Global Edition 3
easy to transfer through either purchase or sale of shares of stock. However, there are some
disadvantages as well. Each shareholder is likely to own only a small percentage of the stock; agency
problems can be pretty serious (see Section 1.3). There is extreme separation between the firm and its
owner.
1.2 Ownership Versus Control of Corporations.
Section 1.2 highlights the separation of ownership and control in the corporation, with particular
emphasis on principal-agent problems and the firm’s relationship with society. The chapter
emphasizes the market for corporate control as the primary means for encouraging managers and
1.3 The Stock Market
An important feature of equity investment is its liquidity. Stock markets improve liquidity for
investors by enabling investors to trade shares of public corporations. The NYSE is the world’s
largest stock market. It has a physical location, where market makers match buyers to sellers. The
researchers estimate that there are as many as 50 venues on which to trade stock in the United States
alone. They compete mainly on liquidity. Stock markets remain in a state of flux.
IV. Spreadsheet Solutions in Excel
The following problems for Chapter 1 have spreadsheet versions available: 6 and 7.
These spreadsheets can be downloaded from the Instructor’s Resource Center at: