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Corporate Finance Exam Questions and Answers
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  • Course
  • Corporate Finance
  • Institution
  • Corporate Finance

capital budgeting - ANSWER-the process of planning and managing a firm's long term investments Role of Finance - ANSWER-1) Manage Cash--> management of daily activities 2) What projects should we take on (investments) -how should we finance them? Owners=Managers? - ANSWER-Owners are the...

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Document information

  • May 30, 2024
  • 5
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers

Subjects

  • corporate finance exam questions and answers
  • capital budgeting answer the process of planning

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  • Corporate Finance
  • Corporate Finance

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lectknancy

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Corporate Finance Exam Questions and Answers
capital budgeting - ANSWER-the process of planning and managing a firm's long term investments
Role of Finance - ANSWER-1) Manage Cash--> management of daily activities
2) What projects should we take on (investments) -how should we finance them?
Owners=Managers? - ANSWER-Owners are the stockholders
Managers are the professionals hired to act on behalf of the owners
CFO - ANSWER-Chief Financial Officer -Managerial, Financial accounting, taxes MIS (management info systems)
Treasurer - ANSWER-concerned with managing cash, credit, financial planning
Cash Flow is... - ANSWER-KING
Capital Structure - ANSWER-Mix of debt and equity financing in a firm
Relationship of Assets, Liabilities and Stockholder Equity - ANSWER-A=L + SE
Note: SE=purchased stock and retained earnings
Who gets paid first when a company goes bankrupt? - ANSWER-Creditors. Shareholders are residual claimant so they get paid last, if at all
Working capital - ANSWER-short term assets and liabilities -cash -receivables -inventory -accounts payable -short term debt
Net Working Capital = - ANSWER-CA-CL
-should be positive in a healthy firm
-negative in a struggling firm or in a healthy firm that has a line of credit to get through a lean time
Sole Proprietorship - ANSWER--business and individual are one legal entity
-least regulated -unlimited liability for business debt
-owner keeps all profits --> taxed as income
-owner=manager (generally)
-limited life (life of business=life of owner)
-sale of the business is difficult with this form of business
-limited ability to grow because it is hard to raise cash
Partnership - ANSWER--2+ people working together
-general partner -active in business -liable for business debt
-limited partners are not active in business -the most they can lose is what they have invested
-all income goes to partners as ordinary income
-not easy to transfer ownership
-limited ability to grow because it is hard to raise cash
Corporation - ANSWER--legal person
-distinct from owners
-can borrow or own property
-can sue and be sued
-can enter into contracts
-can own stock in another corporation
-requires charter or articles of incorporation & bylaws
-must pay taxes
-dividends to owners are also taxed (double taxation)
-can easily transfer ownership -unlimited life
-can issue new equity
-shareholders are not personally liable for business debts
-easy to borrow
Limited Liability Company - ANSWER-(LLC)
-behaves like a partnership with some liability shield from business debts
Public Corporation - ANSWER--trade on an exchange or over the counter (OTC)
-auction on exchange
Over the counter - ANSWER--one selling directly to another, who hopes to make a profit
on the resale
Goal of Financial Management - ANSWER--make money or add value
-maximize current stock price (for one share of stock)
How are shareholders in charge of the company - ANSWER--Shareholders elect the board of directors --> BoD hires and fires managers

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