FIN 357 Exam Questions with Verified Answers

What is finance? - Answers-What long-term investments should you take on? Where will you get the financing? How will you manage financial activities? capital budgeting/ investment decision - Answers-the process of planning and managing a firm's long-term investments; What productive activities?; short-term, long-term is efficiency capital structure/ financing decision - Answers-the mixture of debt and equity maintained by a firm; How do we raise capital funds from investors?; claims, equity, short-term debt, long-term debt (stocks and bonds) corperations - Answers-limited liability; unlimited life proprietors and partnerships - Answers-unlimited liability; limited life the goal of Financial Management (the corporation) - Answers-increase stockholder price; maximize current value per share efficient production - Answers-productive resources are scarce; only the resources needed to produce only the products/services that consumers actually want; investors will only want to investor if the corp. produced adequate return on their invested capital agency - Answers-a relationship between an agent and a principal in which the agent acts for and represents the principal on the basis of the principal's instructions; the cash flows are reduced by existence of agency problems (direct & indirect costs) indirect agency costs - Answers-show short-term profit; long-term neglect direct agency costs - Answers-transportation; hotels; luxury provided by org Cash management/ working capital management - Answers-How does the corporation ensure that it has enough cash to operate on a daily basis? board of directors - Answers-a board elected by shareholders to govern the corporation on their behalf. The board sets strategic direction and hires and guides the corporation's managers.Hostile takeovers Chief Executive Officer (CEO) - Answers-The senior manager of the corporation; responsible for the execution of the board's strategic direction. Often the CEO is also the Chair of the BOD