LSUS FIN 701 - EXAM 1 – CHOI
Questions and Answers
4 Basic Areas of Finance - Answer-corporate finance
investments
financial institutions
international finance
Basic Area of Finance: Investments - Answer-The investments area deals with financial
assets such as stocks and bonds. The main question in this area is how to value
financial assets such as stocks and bonds and how to identify potential risk and rewards
associated with Investing in financial assets. The practical question is what is the best
way to form a portfolio, i.e. what is the best way to allocate financial assets.
Corporate Finance: Capital Budgeting - Answer-What long term investments or projects
should the firm take on? That is, what lines of business will you be in and what sorts of
buildings, machinery, and equipment will you need? (Size, timing, and Risk of
FCF/future cash flow)
Corporate Finance: Capital Structure (Financial Structure) - Answer-Where will you get
the long-term financing to pay for your investment/assets? Will you bring in other
owners/stockholders, or will you borrow the money? Should we use debt or equity?
A firm's capital structure (or financial structure) is the specific mixture of - Answer-long-
term debt and equity the firm uses to finance its operations. Regarding the firm's capital
structure, the financial manager should answer two questions: 1. how much should the
firm borrow? and 2. How and where should the firm raise the money?
Corporate Finance: Working Capital Management - Answer-How will you manage your
everyday financial activities such as collecting from customers and paying suppliers?
refers to a firm's short-term assets, such as inventory, and its short-term liabilities, such
as money owed to suppliers. E.g., How much cash and inventory should we keep on
hand?
Examples of Long-term Investments - Answer-buildings, machinery, and equipment
Financial Managers: - Answer-Answer questions regarding: Capital Budgeting (lt
investments), Capital Structure (how to pay), and Working Capital Management (day to
day)
Questions and Answers
4 Basic Areas of Finance - Answer-corporate finance
investments
financial institutions
international finance
Basic Area of Finance: Investments - Answer-The investments area deals with financial
assets such as stocks and bonds. The main question in this area is how to value
financial assets such as stocks and bonds and how to identify potential risk and rewards
associated with Investing in financial assets. The practical question is what is the best
way to form a portfolio, i.e. what is the best way to allocate financial assets.
Corporate Finance: Capital Budgeting - Answer-What long term investments or projects
should the firm take on? That is, what lines of business will you be in and what sorts of
buildings, machinery, and equipment will you need? (Size, timing, and Risk of
FCF/future cash flow)
Corporate Finance: Capital Structure (Financial Structure) - Answer-Where will you get
the long-term financing to pay for your investment/assets? Will you bring in other
owners/stockholders, or will you borrow the money? Should we use debt or equity?
A firm's capital structure (or financial structure) is the specific mixture of - Answer-long-
term debt and equity the firm uses to finance its operations. Regarding the firm's capital
structure, the financial manager should answer two questions: 1. how much should the
firm borrow? and 2. How and where should the firm raise the money?
Corporate Finance: Working Capital Management - Answer-How will you manage your
everyday financial activities such as collecting from customers and paying suppliers?
refers to a firm's short-term assets, such as inventory, and its short-term liabilities, such
as money owed to suppliers. E.g., How much cash and inventory should we keep on
hand?
Examples of Long-term Investments - Answer-buildings, machinery, and equipment
Financial Managers: - Answer-Answer questions regarding: Capital Budgeting (lt
investments), Capital Structure (how to pay), and Working Capital Management (day to
day)
