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FIN 301 Exam 1 Questions with Correct Answers
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  • Course
  • FIN 301
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  • FIN 301

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...

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  • August 24, 2024
  • 9
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • fin 301 exam 1 questions with correct answers
  • capital budgeting answer the process of planning

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  • FIN 301
  • FIN 301

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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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