This document contains a econ managerial finance examination with final exam review questions and answers. It tests knowledge on various managerial finance topics
MBA6040 MANAGERIAL FINANCE;
EXAM QUESTIONS WITH 100%
CORRECT ANSWERS
Chapter 6 - Business Organizations and the Tax Environment
Shareholder - A person who invests in a corporation by buying stock and is a partial
owner
Stakeholder - An individual, group, or organization who may affect, be affected by, or
perceive itself to be affected by a decision, activity, or outcome
-An employee, shareholder, local community
Goals of the Firm - Stockholder wealth maximization
Managerial Incentives to maximize shareholder wealth
Social Responsibility
Stock price Maximization
Social Welfare
Maximizing shareholder wealth - Maximizing firm value
Profit Maximization
Value Creation - The activities and processes that increase the worth of a product or
service.
Value Maximization - Maximizing the benefits (price/quality comparison) that an
individual or set of customers will realize as a result of using a product or service
Agency Conflicts - conflicts of interest between a principal and an agent
Owner/principal hires an agent and delegates decision-making authority to that agent to
act on behalf of the principal.
Problem exists when there are conflicts of interest between stockholders and Managers
or Creditors
How Finance Fits into Business Organization -
Ethics in Finance - Established codes of conduct help "ethical" firms prosper whereas
"unethical" firms do not
, Corporation - A business owned by stockholders who share in its profits but are not
personally responsible for its debts
A corporation is a legal entity that is separate and distinct from its owners
Partnership - A business in which two or more persons combine their assets and skills
Formal arrangement by two or more parties to manage and operate a business and
share its profits
Sole proprietorship - a business owned and managed by a single individual
General Partnership - A partnership in which all owners share in operating the business
and in assuming full liability for the business's debts
LLC - -Owners are not personally liable for the company's debts or liabilities. Limited
liability companies are hybrid entities that combine the characteristics of a corporation
with those of a partnership or sole proprietorship.
-Provides limited liability for owners
-Taxed like a partnership
-Flexible ownership structure
C Corporation - -The most common type of corporation, which is a legal business entity
that offers limited liability to all of its owners, who are called stockholders
-Not a pass through entity. Income is taxed at the corporate level
-Owners pay personal income tax on profits
-Business must pay corporate income tax
Personal Taxation -
S Corporation - -a form of corporation that avoids double taxation by having its income
taxed as if it were a partnership
-"Pass-through entity," which means the business itself isn't taxed. Instead, income is
reported on the owners' personal tax returns.
-Owners pay personal income tax on profits
-Business must pay corporate income tax
-All business income/loss is passed through to owners each year.
-No more than 100 shareholders
-Shareholders must be U.S. citizens or resident aliens
Corporate Taxation - Can be taxed twice, first to corporation, then to shareholders via
dividends
Companies attempt to limit tax liability by shifting location of income
Capital gains - The positive difference between the purchase price of a stock and its
sale price
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