Capital budgeting - Answer-planning and managing a firm's long term investments
Ex: deciding to open at new location, or what computer system to use
Capital Structure - Answer-mixture of debt and equity maintained by a firm
Ex: How much should firm borrow and what are least expensive sources o...
Fin 301 Exam Questions with Latest
Update
Capital budgeting - Answer-planning and managing a firm's long term investments
Ex: deciding to open at new location, or what computer system to use
Capital Structure - Answer-mixture of debt and equity maintained by a firm
Ex: How much should firm borrow and what are least expensive sources of funds for
firm
Working Capital Management - Answer-firm's short-term assets and liabilities
Ex: day-to-day activities, short term assets like inventory and short term liabilities like
money owed to suppliers
Corporation
Advantages & Disadvantages - Answer-business created as distinct legal entity
composed of one or more individuals or entities
Adv: limited liability, unlimited life, separate ownership and management, easier to raise
capital
Disadv: separate ownership and management, double taxation
General vs Limited Liability Partners - Answer-General can lose everything including
personal assets where Limited can only lose what they have invested, a shareholder is
a Limited liability owner.
Corporate profits are taxable income to the share holders only when___ - Answer-
Taxable income when the shareholders receive it
The majority of firms in U.S. are structured as___ - Answer-Sole Proprietorships
Goal of financial management - Answer-Make money or add value for the owners,
maximize shareholders wealth
Agency problem - Answer-conflict of interest between the stockholders and
management
Managerial compensation - Answer-incentives used to align management and
stockholders interests, need to be structured carefully to make sure they achieve their
goal
Compensation based on value of stock, Stock option plans, Threat of company
takeover, Threat of proxy fight, are all examples of what? - Answer-Things that help to
convince managers to work in the best interest of the stockholders
, Stakeholder vs shareholder - Answer-stakeholder is someone other than
stockholder/creditor who potentially has claim on cash flows
Ex: customers, suppliers, some employees, Government
Primary Market - Answer-initial public offering of stock from the corporation
Secondary Market - Answer-money transferred between used stocks like in the DOW.
General shares buying/selling
Dealer Markets - Answer-Buy/sell stocks like Edward Jones, also called over the
counter markets, NASDAQ has no location, only online and spread out over the world
Auction Markets - Answer-no middle man, bidding on big shares, has physical location
NYSE
Balance sheet - Answer-snapshot of firm's assets and liabilities at a given point in time
Total assets= total liabilities + stockholders equity
Financial manager should consider (4) when analyzing a capital budgeting project -
Answer-Project start up costs, Timing of projected cash flows, Dependability of cash
flows, and Dollar amount of each projected cash flow
Net working capital - Answer-Current assets - current liabilities
Positive when cash to be received exceeds cash to be paid out
Liquidity - Answer-ability to convert cash quickly w/o significant loss in value
liquid firms are less likely to experience financial distress, but liquid assets typically earn
lower return
Balance sheet provides the ____ value of the assets, liabilities and equity - Answer-
Book value
Income statement - Answer-financial statement summarizing a firm's performance over
period of time
Average tax rate - Answer-= total taxes/ taxable income
Marginal tax rate - Answer-amount of tax payable on next dollar, calculated by different
tax rates brackets until total income is reached
Cash flow from assets (CFFA) - Answer-= operating cash flow- net capital spending-
change in net working capital
Operating cash flow - Answer-Cash generated from firm's normal business activities
=Earnings before interest and taxes (EBIT)+ Depr. -Taxes
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