MBA6040 MANAGERIAL FINANCE EXAM
PREP QUESTIONS WITH CORRECT
ANSWERS
3 General Concepts of Finance - 1: More value is preferred to less
2: The sooner cash is received the more valuable it is
3: Less-risky assets are more valuable that riskier assets
Proprietorship - An unincorporated business owned by one individual.
Partnership - An unincorporated business owned by 2 or more persons.
Corporation - A legal entity created by a state, separate and distinct from its owners and
managers, having unlimited life, easy transferability of ownership, and limited liability.
Corporate Charter - A document filed with the secretary of the state in which a business
is incorporated that provides information about the company, including its name,
address, directors, and amount of capital stock.
Bylaws - A set of rules drawn up by the founders of the corporation that indicates how
the company is to be governed; includes procedures for electing directors, rights of
stockholders, and how to change when necessary.
Limited Liability Partnership (LLP) - A partnership wherein at least one partner is
designated as a general partner with unlimited personal financial liability and the other
partners are limited partners whose liability is limited to the amounts they invested in the
firm.
Limited Liability Company (LLC) - Offers the limited liability associated with a
corporation; however, the company's income is taxed like that of a partnership.
S Corporation - A corporation with no more than 100 stockholders that elects to be
taxed in the same way as proprietorships and partnerships, so that business income is
only taxed once.
Stockholder Wealth Maximization - The appropriate goal for management decisions;
considers the risk and timing associated with expected cash flows to maximize the price
of the firm's common stock.
, Value - The present, or current, vale of the cash flows that an asset is expected to
generate in the future.
Agency Problem - A potential conflict of interest between outside shareholders (owners)
and managers who make decisions about how to operate the firm.
Hostile Takeover - The acquisition of a company over the opposition of its management.
Business Ethics - A company's attitude and conduct toward its stakeholders
(employees, customers, stockholders, & community).
Corporate Governance - Deals with the set of rules that a firm follows when conducting
business; these rules identify the who is accountable for major financial decisions.
Stakeholders - Those who are associated with a business, including managers,
employees, customers, suppliers, creditors, stockholders, and other parties with an
interest in the firm's well-being.
Proxy Votes - Voting power that is assigned to another party such as another
stockholders or institution (often a bank).
Industrial Groups - Organizations of companies in different industries with common
ownership interests, which include firms necessary to manufacture and sell products;
network of manufacturers, suppliers, marketing organizations, distributors, retailers, and
creditors.
Multinational Companies - Firms that operate in 2 or more countries.
Exchange Rates - The price at which the currency of one country can be converted into
the currencies of other countries.
Production Opportunity - The return available within an economy from investment in a
productive (cash-generating) asset.
Time Preference for Consumption - The preference of a consumer for current
consumption as opposed to saving for future consumption.
Risk - In a financial market context, the change that a financial asset will not earn the
return promised.
Inflation - The tendency of prices to increase over time.
Nominal (quoted) Risk-free Rate (rRF) - The rate of interest on a security that is free of
all risk; proxied by the T-bill rate and includes an inflation premium.
