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CORPORATE FINANCE EXAM(CH. 1, 2, 3, 12) QUESTIONS AND ANSWERS #5
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CORPORATE FINANCE EXAM(CH. 1, 2, 3, 12) QUESTIONS AND ANSWERS #5
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CORPORATE FINANCE EXAM(CH. 1, 2, 3, 12) QUESTIONSAND ANSWERS #5
Why is corporate finance important to all managers? (2 reasons) - correct answer 1.
Provides skills managers need to identify and select the corporate strategies and
individual projects that add value to their firm
2. Provides the skills managers need to forecast the funding requirements of their
company and come up with strategies for acquiring those funds
Business organization (3) - correct answer 1. Sole proprietorship
2. Partnership
3. Corporation
Sole proprietorship - correct answer an unincorporated business owned by one
individual, started right after obtaining licenses. Adv: easily/inexpensively formed,
subject to few gov. Regs, no corp income taxes. Disadv: limited life, unlimited liab,
difficult to raise capital
Partnership - correct answer 2+ associate to conduct a non corporate business for
profit. Has basically same advantages and disadvantages as a proprietorship
Partnership type: limited partnership - correct answer certain partners are general
partners and others limited (limits liabilities for some, can only lose some amount of
their investment)
Partnership type: limited liability partnership - correct answer all partners enjoy limited
liability with regard to the business's liabilities, and their potential losses are limited to
their investment
Corporation - correct answer legal entity created under state laws, separate an distinct
form its owners/managers. MANY OWNERS
Advantages of corporation (3) - correct answer 1. Unlimited life
2.easy transferability of ownership interest
3.limited liability
Disadvantages of corporation - correct answer 1. Earnings subject to double taxation:
taxed at corporate level and dividends as well
2. Prepare charter, set of bylaws, filing state and federal reports
Charter includes 5 things: - correct answer 1. Name of proposed corp
2. Types of activities it will pursue
3. Amount of capital stock
4. # directors
5. Names and addresses of directors
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