Managerial Finance (topic in instruction) - Essay Example

Examples here include venture capital businesses that require consistent capital. However, the investors are allowed to limit their liability due to the massive outlay of capital and investments in the company’s operations. Another example that benefits from limited liability partnership are firms employing and owned by attorneys and accountants that offer professional services (Steingold & Bray, 2001).. A good example is the McGladrey & Pullen Limited Liability Partnership, a mega accounting firm in the United States.

Evidently, a 1% investment acquired by partners in the company accrues a liability that limits their exposure to their personal amounts invested. 2. When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading? Explain by giving examples. Insider trading occurs when an individual in a company or associated with an employee of a company accesses pertinent information, and illegally uses it to purchase or sell stock (Macey, 1991).

Evidently, such information is used by the individual to gain unfair advantage in the trading of stocks compared to the general public. Example of an insider trading is in reference to the case of Rajat Gupta, a prominent New York based businessman. Evidently, he is accused of acquiring insider from a board meeting of Goldman Sachs. The information revealed that Warren Buffet was planning to make a huge investment that would in effect raise the stock pricing of the firm. Consequently, Rajat Gupta collaborated with Raj Rajaratnam, a hedge fund manager and to purchase stocks from Goldman Sachs when the price was still down.

To this end, the government agency in the United States charged with protecting against insider trading is the Securities and Exchange Commission. Its mission is to protect investors, ensure orderly, fair, efficient markets and oversee capital formation. Evidently, the Securities and Exchange Commission enforces the law against insider trading through its division of enforcement. The enforcement division commences investigations against insider trading plus a host of other unethical issues. These include investigations against theft of customer securities or funds, manipulation of securities market prices, sale of unregistered securities, omission or misrepresentation of pertinent information concerning securities.

An example of a successful conviction by the SEC in insider trading relates to the case of Rajat Gupta and his collaborator Raj Ratnaman, the hedge fund manager. Evidently, Rajaratnam was investigated by the SEC and found guilty of insider trading. 3. Explain how the tax code allows depreciation to contribute to cash flow. An innate understanding of the tax deductions of businesses offers an appealing opportunity for business proprietors to enjoy individual benefits from business expenditures.

To this end, the tax code provides an opportunity for gross income deductions that minimize income taxes. Moreover, the increase of tax deductions minimizes income taxes and taxable income. Consequently, an understanding of how to maximize the deductible expenses of a business enables the proprietor to lower the taxes. Evidently, the tax code allows for tax deduction on expense depreciation. Consequently, it results to tax shield or tax saving that increases the operational cash flow by default.

However, this action is based on the premise that a taxable income is present. In effect, if taxable income was not