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FUNDAMENTALS OF CORPORATE FINANCE EXAM SOLVED -13
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FUNDAMENTALS OF CORPORATE FINANCE EXAM SOLVED -13
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FUNDAMENTALS OF CORPORATE FINANCE EXAM SOLVED #13Capex decisions - correct answer capital expenditure decision:decisions to invest in
tangible/intangible assets
Capex - correct answer capital expenditure-land,property, equip, long term real assets
Free cash flow - correct answer cash available once the firm has covered it's capital
expenditures
Financing decisions - correct answer concerned with the ways in which firms obtain and
manage long term financing to acquire and support their productive assets(finance or
pay for assets)
-the form and amount of financing a firm's investment, how to get $ in the door, should i
issue debt or isssue equity?
Real assets - correct answer assets used to produce goods and services, not financial
Asset - correct answer future benefit
Economic resource
Future economic value will produce profit/value in the future
Financial asset - correct answer financial claims to income generated by real assets
-bonds
Corporation - correct answer a business owned by stockholders who share in its profits
but are not personally responsible for its debts
-organized as a seperate legal identity owned by stockholders
"a nexus of contracts"
A distinct legal entity, owned by shareholders
Organized under 'articles of incorporation'
Limited liability - shareholders not personally responsible for debts of corporation
May be 'private' or 'public' (latter has shares issued and trading on exchanges)
May be 'closely held,' or widely dispersed shareholders
Shareholders elect a board of directors, who appoint and monitor managers
"separation of ownership and control" - shareholders defer to board, managers
Managers may quit, or be replaced, and corporation continues
, Downside? "agency costs"
Berle and means, the modern corporation and private property
Two other downsides
Expensive legal/compliance machinery
"double taxation" - corporate income taxed, and so are dividends and capital gains for
shareholders
Llimited liability - correct answer the owners of a corp are not personally liable for
obligations of the corp- but can still be sued for personal decisions
Cfo - correct answer chief financial officer-leader, the most important
Leads financial decisions and execution
Oversees offices of treasurer, controller
Oversees whole financial staff
Close contact with ceo, other senior execs
Key external voice for corporation
Treasurer - correct answer responsible for financing, cash management, and
relationshp with banks and other instit. Internal/external manage.
Controller - correct answer internal statements- responsible for budgeting, taxes, and
accounting
Oppurtunity cost of capital - correct answer minimum acceptable rate of return on
capital investment- the rate of return that investions could earn in finance. Markets, look
at proj. Of similar risk, return
Agency problems - correct answer managers are agents for shareholders, but the
managers may act in their own interest
Stakeholder - correct answer anyone with a financial interest in the firm
Financial market - correct answer market where securities are issued and traded
Primary market - correct answer market for the sale of new securities by corporations, a
financial market in which new issues of a security are sold to initial buyers.
Secondary market - correct answer market in which previously issued securities are
traded amond investors, exchanges and over-the-counter markets where securities are
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