FIN 211 QUIZ 1 EXAM QUESTIONS WITH 100%
CORRECT ANSWERS
Finance
Making decisions to increase value
What are the two branches of finance?
Corporate finance and investments
What is corporate finance about?
The day-to-day activities of firms/corporations
What is investments about?
Financial markets
Which way does finance look?
Finance is forward looking
What does forward looking mean?
- Making decisions to impact the future
- Only uses the past to help inform the future
How does finance incorporate decisions
Incorporates ALL decisions made to increase firm value, including Sales, Production, and
Employees decisions
What is you objective as the owner/manager of a business?
To have a successful business
What is the measure of success?
Value of the business increases
What is equivalent to business value?
Owner value
If you and a partner have a business, does this change the objective?
The objective is still to have a successful business, but the measure of success could be different
for each person
What are the different types of business structures?
, - Proprietorship
- Partnership
- Corporation
Proprietorship
- Single owner
- Owner and manager are the same
- Business is an extension of the owner
- Business debts and assets are personal debts and assets
Partnership
- More than one owner
- Share ownership
- Business debts may be personal debts
Corporation
- Separate legal entity
- Limited liability of the owners
- Owners are shareholders (own common stock)
- Ownership is separated from managers
Benefits of a Corporation
- Limited liability for owners
- Size
- Access to Financial Markets
- Ease of raising capital
Drawbacks of a corporation
- Double taxation
- Agency problems
- Regulation
When do agency problems arise?
When decisions are delegated to someone else that is not the ultimate beneficiary
Ex: Real estate agent
Two types of agency problems
- Separation between owners and managers
- Separation between owners and creditors
What is the agency problem between owners and managers?
CORRECT ANSWERS
Finance
Making decisions to increase value
What are the two branches of finance?
Corporate finance and investments
What is corporate finance about?
The day-to-day activities of firms/corporations
What is investments about?
Financial markets
Which way does finance look?
Finance is forward looking
What does forward looking mean?
- Making decisions to impact the future
- Only uses the past to help inform the future
How does finance incorporate decisions
Incorporates ALL decisions made to increase firm value, including Sales, Production, and
Employees decisions
What is you objective as the owner/manager of a business?
To have a successful business
What is the measure of success?
Value of the business increases
What is equivalent to business value?
Owner value
If you and a partner have a business, does this change the objective?
The objective is still to have a successful business, but the measure of success could be different
for each person
What are the different types of business structures?
, - Proprietorship
- Partnership
- Corporation
Proprietorship
- Single owner
- Owner and manager are the same
- Business is an extension of the owner
- Business debts and assets are personal debts and assets
Partnership
- More than one owner
- Share ownership
- Business debts may be personal debts
Corporation
- Separate legal entity
- Limited liability of the owners
- Owners are shareholders (own common stock)
- Ownership is separated from managers
Benefits of a Corporation
- Limited liability for owners
- Size
- Access to Financial Markets
- Ease of raising capital
Drawbacks of a corporation
- Double taxation
- Agency problems
- Regulation
When do agency problems arise?
When decisions are delegated to someone else that is not the ultimate beneficiary
Ex: Real estate agent
Two types of agency problems
- Separation between owners and managers
- Separation between owners and creditors
What is the agency problem between owners and managers?
