| Course | FIN-3140 Small Business Finance |
|---|---|
| Module | Module 1 |
| Paper type | Written assignment 1: concepts of financial management |
| Length | About 695 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | B.S.B.A. in Finance |
| Updated | October 2026 |
Free sample paper for FIN 3140 Module 1
One Boat, Three Legal Forms: Financial Management Concepts at Cape Point Whale Watch
Student Name
B.S.B.A. in Finance, Thomas Edison State University
FIN-3140: Small Business Finance
Mentor Name
Month Day, Year
One Boat, Three Legal Forms: Financial Management Concepts at Cape Point Whale Watch
Question 1: What should the goal of financial management be?
For the owner, the aim is the long-run value of the business, not the largest profit in any one season. The difference matters for Cape Point. The owner could raise this year's profit by skipping the winter haul-out and engine service, but doing so would raise the risk of a breakdown in August, when a lost week of trips would cost far more than the service saved. Value maximization looks at the size, timing and risk of cash flows over the life of the business, which is how the owner should judge decisions such as replacing engines, adding a second boat or raising ticket prices (Adelman & Marks, 2014).
Question 2: How does the owner-manager relationship differ from a large company's?
In a large corporation, managers and shareholders are different people, so agency problems arise when managers pursue their own interests. In Cape Point, the owner is the captain and manager, so that conflict disappears. Two others take its place. The owner's personal finances and the business's are easily mixed, which makes it hard to judge whether the business itself earns an adequate return. The bank holding the boat loan has the largest outside stake, and Petersen and Rajan (1994) showed that close ties to a lender win small firms easier, cheaper credit, so the owner should keep the bank well informed.
Question 3: Which legal form should Cape Point use?
In 2025 the business earned $239,670 before the owner's $85,000 salary and before interest and taxes were otherwise considered at the owner level. Using an illustrative combined federal and state income tax rate of 30 percent and a self-employment or payroll tax rate of 15.3 percent on wages or self-employment income up to the Social Security limit, the three forms compare as follows.
The S corporation election saves roughly $15,000 a year in self-employment and payroll taxes in this example because only the owner's salary, not the remaining profit, is subject to those taxes, provided the salary is reasonable for a captain and manager. The LLC form, whether taxed as a partnership or an S corporation, also limits personal liability, which matters for a business carrying 149 passengers on open water. Cape Point should operate as an LLC electing S corporation status, with ample liability insurance, since limited liability does not protect an owner from claims arising from her own negligence as captain.
| Sole proprietorship | LLC taxed as a partnership | LLC electing S corporation status | |
|---|---|---|---|
| Owner personally liable for the firm's debts and lawsuits | Unlimited | Limited | Limited |
| Income subject to self-employment or payroll tax | All $239,670 (subject to the wage base) | All $239,670 | Only the $85,000 salary |
| Self-employment or payroll tax, approximate | about $28,000 | about $28,000 | about $13,000 |
| Income tax at 30% on business income | about $72,000 | about $72,000 | about $72,000 |
| Added cost | Lowest | Filing fees | Payroll filings, reasonable salary rules |
Question 4: Why can a profitable season leave the business short of cash?
Cape Point earns almost all its revenue from May to October but pays insurance, dock rent, loan payments and its winter haul-out and maintenance year round. By April, before the first trips, cash has fallen to its lowest point, even after a profitable year. Accrual profit records revenue and expenses when earned and incurred; cash flow records when money arrives and leaves. A business can report a profit for the year and still be unable to pay its April bills, which is why the owner needs a monthly cash budget and a seasonal line of credit, topics in later modules.
Question 5: What role does risk play?
Small business returns are uncertain: weather cancels trips, fuel prices swing and a single mechanical failure can stop all revenue for a one-vessel company. Investors, including the owner, should expect a higher return for bearing more risk. Berger and Udell (1998) describe how the financing available to small firms changes as they grow and their risk becomes easier for outsiders to judge, which is why Cape Point relies on the owner's equity and an asset-backed loan rather than outside investors.
References
Adelman, P. J., & Marks, A. M. (2014). Entrepreneurial finance (6th ed.). Pearson.
Berger, A. N., & Udell, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance, 22(6-8), 613-673. https://doi.org/10.1016/S0378-4266(98)00038-7
Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49(1), 3-37. https://doi.org/10.1111/j.1540-6261.1994.tb04418.x
FIN 3140 Module 1 instructions, in plain terms
Six FIN-3140 assignments, 36 percent of the grade in all, pose questions and problems drawn from each module. Module 1, Concepts of Financial Management, covers the goal of financial management, the role of the entrepreneur, legal forms of business and their tax consequences, and the difference between profit and cash. Expect conceptual questions alongside a short computation, such as a tax comparison across legal forms. The company and tax rates here are illustrative composites; your own problems will come from Adelman and Marks or the course site. Expect questions on the goals of financial management in a small firm, the forms of business organization, taxes and the agency issues that arise when owners also manage.
Inside the FIN 3140 Module 1 example
A heading per question, a direct answer first, then the whale-watching boat as the example. The legal form question carries the most weight: a table compares liability, self-employment or payroll tax and income tax across three forms using the company's own earnings, followed by a recommendation with its condition. The cash question explains seasonality in plain terms and points ahead to the cash budget, and the risk question ties the firm's financing to research on how small businesses are funded. The concepts are applied to one composite seasonal business that the rest of the course follows. Each answer closes with what it means for the owner.
FIN 3140 Module 1 rubric: what earns full marks
The legal form and goals set is graded on fit with a one-boat owner's situation. Mentors look for correct answers to each question, accurate computations where problems call for them and explanations that apply the concepts to a business rather than repeat definitions. Showing work on the tax comparison, stating assumptions such as the tax rates used and recognizing the limits of each legal form demonstrate understanding. Clear organization, one heading per question, helps the mentor follow every answer. Answers that apply each concept to a specific small firm, rather than defining it, earn the most credit. Short, accurate definitions followed by a concrete application to the owner's decisions earn full credit. Answers that weigh each legal form against the owner's real situation, such as personal liability for a boat carrying passengers, earn the most.
FIN 3140 Module 1 help: mistakes that cost marks
Answers in this module lose points for equating maximizing value with maximizing this year's profit, for comparing legal forms without numbers and for forgetting that limited liability does not cover an owner's own negligence. State your tax assumptions before computing. Show how the choice of form changes self-employment or payroll tax. Connect the cash question to the business's seasonal pattern. Answer what each question asks and stop there. A free first sample of your own FIN-3140 Module 1 problems is available on request. Explain how each concept affects a decision the owner actually faces. Use the same business through every answer.
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FIN 3140 Module 1 questions, answered
Where can I find a free FIN 3140 Module 1 sample paper?
The whale-watching company problem set above covers the goal of financial management, the owner-manager relationship, a legal form tax comparison and why profit and cash differ.
What is the goal of financial management in a small business?
To maximize the value of the owner's investment, considering the size, timing and risk of cash flows, not only this year's profit.
Why do small business owners elect S corporation status?
Mainly because only the owner's reasonable salary, not all profit, is subject to payroll taxes, while income still passes through to the owner.
Does an LLC protect the owner from all liability?
No. It protects personal assets from business debts and many claims, but not from the owner's own negligence or personal guarantees.
What textbook does FIN-3140 use?
Adelman and Marks's Entrepreneurial Finance, sixth edition.