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FIN 701 W1 Exam Questions with Correct Answers
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An example of a capital budgeting decision is deciding: - Answer-whether or not to purchase a new machine for the production line Capital structure decision includes determining: - Answer-how much debt should be assumed to fund a project The decision to issue additional shares of stock is an ...

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  • August 23, 2024
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  • 2024/2025
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  • fin 701 w1 exam questions with correct answers
  • an example of a capital budgeting decision is dec

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FIN 701 W1 Exam Questions with
Correct Answers
An example of a capital budgeting decision is deciding: - Answer-whether or not to
purchase a new machine for the production line

Capital structure decision includes determining: - Answer-how much debt should be
assumed to fund a project

The decision to issue additional shares of stock is an example of: - Answer-a capital
structure decision

Which one of the following questions is a working capital management decision: -
Answer-how much inventory should be on hand for immediate sale?

Which one of the following terms is defined as the management of a firm's long-term
investments: - Answer-capital budeting

Which one of the following terms is defined as the mixture of a firm's debt and equity
financing: - Answer-capital structure

A firm's short-term assets and its short-term liabilities are referred to as the firm's: -
Answer-working capital

A business owned by a solitary individual who has unlimited liability for the firm's debt is
called: - Answer-sole proprietorship

A business formed by two or more individuals who each have unlimited liability for all of
the firm's business debts is called a: - Answer-general partnership

A business parter whose potential financial loss in the partnership will not exceed his or
her investment in that partnership is called a: - Answer-limited partner

A business created as a distinct legal entity and treated as a legal "person" is called
a(n) - Answer-corporation

Which one of the following statements concerning a sole proprietorship is correct: -
Answer-the owner of a sole proprietorship is personally responsible for all of the
company's debts

One disadvantage of the corporate form of business ownership is the: - Answer-double
taxation of distributed profits

, Which of the following statements is correct: - Answer-corporations can have an
unlimited life

Which business form is best suited to raising large amounts of capital: - Answer-
corporation

The growth of both sole proprietorships and partnerships is frequently limited by the
firm's: - Answer-inability to raise cash

Corporate dividends are: - Answer-taxable income of the recipient even though that
income was previously taxed

Financial managers should primarily focus on the interests of: - Answer-shareholders

The Sarbanes-Oxley Act of 2002 is a governmental response to: - Answer-management
greed and abuses

Which of the following actions by a financial manager is more apt to create an agency
problem: - Answer-increasing current profits when doing so lowers the value of the
company's equity

When is stock said to be in equilibrium? Why might a stock at any point in time not be in
equilibrium? - Answer-Equilibrium is the situation where the actual market price equals
the inartistic value, so investors are indifferent between buying and selling a stock. If a
stock is in equilibrium then there is no fundamental imbalance, hence no pressure for a
charge in the stock's price. At any given time, most stocks are reasonable close to their
inartistic values and thus are at or close to equilibrium. However, at times stock prices
and equilibrium values are different, so stocks can be temporarily undervalued or
overvalued. Investor optimism and pessimism, along with imperfect knowledge about
the true inartistic value, leads to deviations between the actual prices and inartistic
values

What are some actions that stockholders can take to ensure that management's and
stockholders' interests are aligned? - Answer-Useful motivational tools that will aid in
aligning stockholders' and management's interest include: (1) reasonable compensation
packages, (2) direct intervention by shareholders, including firing managers who don't
perform well, and (3) the threat of takeover.

What are the three types of financial management decisions? For each type of decision,
give an example of a business transaction that would be relevant: - Answer-Capital
budgeting (deciding whether to expand a manufacturing plant), capital structure
(deciding whether to issue new equity and use the proceeds to retire outstanding debt),
and working capital management (modifying the firm's credit collection policy with its
customers)

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