FIN 3113 EXAM 1 QUESTIONS WITH
CORRECT ANSWERS
What is perpetuity? - Answer- Infinite series of equal payments
What is EAR? - Answer- Actual rate paid/received after accounting for compounding
that occurs during the year
Why is depreciation added back? - Answer- IT is a non-cash expense.
3 Most common types of business organizations? - Answer- Sole Proprietorship
Partnership
Corporation
What are the different current assets? - Answer- Accounts Receivable
Inventory of goods
Prepaid expense
What is an investment decision? - Answer- Determination by management as to how,
when, where and how much capital will be spent on investment decisions
What is the financing decision? - Answer- What long term investments should you
make?
Where will you get the money to finance these investments?
How will you manage the day-day financial activities of your firm?
Capital Budgeting - Answer- The process of planning and managing a firms long term
investments
What is the capital structure? - Answer- The specific mixture of long term debt and
equity the firm uses to finance its operations
What is a bond? - Answer- A debt instrument in which an investor loans money to an
entity that borrows the funds for a defined period of time at a fixed interest rate
What are the two categories of operating expenses and what defines the difference? -
Answer- Ongoing cost for running a product (operational expenditure)
The cost of developing or producing parts for the products (Capital expenditure)
CORRECT ANSWERS
What is perpetuity? - Answer- Infinite series of equal payments
What is EAR? - Answer- Actual rate paid/received after accounting for compounding
that occurs during the year
Why is depreciation added back? - Answer- IT is a non-cash expense.
3 Most common types of business organizations? - Answer- Sole Proprietorship
Partnership
Corporation
What are the different current assets? - Answer- Accounts Receivable
Inventory of goods
Prepaid expense
What is an investment decision? - Answer- Determination by management as to how,
when, where and how much capital will be spent on investment decisions
What is the financing decision? - Answer- What long term investments should you
make?
Where will you get the money to finance these investments?
How will you manage the day-day financial activities of your firm?
Capital Budgeting - Answer- The process of planning and managing a firms long term
investments
What is the capital structure? - Answer- The specific mixture of long term debt and
equity the firm uses to finance its operations
What is a bond? - Answer- A debt instrument in which an investor loans money to an
entity that borrows the funds for a defined period of time at a fixed interest rate
What are the two categories of operating expenses and what defines the difference? -
Answer- Ongoing cost for running a product (operational expenditure)
The cost of developing or producing parts for the products (Capital expenditure)
