capital budgeting - Answer-the process of planning and managing a firm's long-term investments
capital structure - Answer-the specific mixture of long-term debt and equity the firm uses to finance its operations
-how much should the firm borrow?
-what are the least expensive sources of funds...
FIN 301 Exam 1 Questions with Correct
Answers
capital budgeting - Answer-the process of planning and managing a firm's long-term
investments
capital structure - Answer-the specific mixture of long-term debt and equity the firm uses
to finance its operations
-how much should the firm borrow?
-what are the least expensive sources of funds for the firm?
working capital - Answer-a firm's short-term assets and liabilities
sole proprietorship - Answer-a business owned by a single individual
3 areas of corporate financial management - Answer-capital budgeting, capital
structure, working capital management
Corporation - Answer-a business created as a distinct legal entity composed of one or
more individuals or entities
partnership - Answer-a business formed by two or more individuals or entities
2 types: limited & general
limited partnership - Answer-one or more general partners will run the business and
have unlimited liability, but there will be one or more limited partners who will not
actively participate in the business
general partnership - Answer-all the partners share in gains or losses, and all have
unlimited liability for all partnership debts, not just some particular share
partnership agreement - Answer-the way partnership gains (and losses_ are divided
Disdvantages of Sole Proprietorship - Answer-1) limited to life of owner
2) unlimited liability
3) limits to capital
Advantages of Sole Proprietorship - Answer-1) easy and inexpensive to form
2) single owner
3) taxed as personal income
, finance - Answer-the application of economic principles and concepts to business
decision making & problem solving
investments deal with - Answer-markets & pricing
Financial Institutions include - Answer-banks & other financial firms
Financial managers - Answer--focuses on expected return & risk
-top financial manager is the CFO usually
Financial management decision - Answer-Capital Budgeting
-long term investments or projects
Capital Structure
-paying for assets
-use of debt & equity
Working Capital Management
-day to day finances
Advantages of partnership - Answer-1) easy to start
2) 2+ owners
3) taxes as personal income
Disadvantages of partnership - Answer-1) unlimited liability (all partners)
-general partnership (have to have at least 1)
-limited partnership
2) dissolves when partner dies
3) difficult to transfer ownership
Advantages of a corporation - Answer-1) limited liability
2) unlimited life
3) separation of ownership & management
4) easy transfer of ownership
5) easier to raise capital
Disadvantages of a corporation - Answer-double taxation (corporations pay taxes and
any distributions you get from the corporation are also taxed)
The agency problem - Answer-definition: the possibility of conflict of interest between
the stockholders and management of a firm
-agent acts for the principal
-problems with agency relationship
--conflict of interest between principal & agent (i.e. excessive "perks", shirking, agents
act in own best interest)
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