ASU FIN 300 Exam 1 (Ch 1-4) || All Accurately Answered.
Three areas of finance: correct answers 1. *Financial Management*
-buying/selling of assets
-financing choices
-control costs
2. *Investments*
-purchasing and holding assets & securities
-stocks and bonds
3. *Financial Markets*
-capital markets
-money markets
-financial intermediaries (banks or credit unions)
Productive assets correct answers the long-term tangible and intangible *assets* a firm uses *to
generate cash flows*
Tangible = equipment etc.
intangible = patents, trademarks, technical experience
when purchase productive assets = *capital budgeting*
Financial Managers should make decisions that maximize correct answers the *value of the
owner's stock*
which helps maximize the *owner's wealth* (the economic value of the assets the owners
possesses)
,Stakeholder correct answers anyone other than the owner (stockholder) with a claim on the cash
flows of a firm (employees, customers, creditors, suppliers, the government)
3 fundamental decisions in financial management correct answers a. *Capital budgeting*- which
productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through selling long term
*debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets and liabilities*.
Enough money to *pay the bills* and any money left over is invested to earn a return
Capital Budgeting correct answers *which productive assets* the firm *should purchase* and
how much money the firm can afford to spend
*long term assets* on balance sheets/investments/ productive assets both tangible and intangible
Financing decisions correct answers how firms raise cash to pay for their iterm-55nvestments
ex: productive assets financed by long term borrowing or equity investment
debt financing - advantage=tax deductable
but increase firms risk because contractual obligation to make interest payments
equity- has no maturity/guarantee of payments.
*long term liability (debt) and equity*
Working capital management decisions correct answers how to manage the firm's *current assets
and current liabilities*
, *day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
Capital structure correct answers the mix of debt and equity that is used to finance a firm
Net working capital correct answers the dollar difference between total current assets and total
current liabilities
Capital Markets correct answers financial markets where equity and debt instruments with
maturities greater than one year are traded
Residual Cash Flow correct answers cash remaining after a firm has paid operating expenses and
what it owes creditors and taxes, can be distributed to owners as cash dividend or by
repurchasing shares or reinvested into business
Cash flows between firms and stake/stockholders correct answers A. Cash flows generated by
productive assets through sale of goods/services → management invests in current and
productive long term assets → cash paid as wages, to suppliers, as interest, as taxes → to
employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
→ cash reinvested in business
→ cash used to pay dividends/repurchase shares
Forms of Business Organization correct answers 1. *Sole proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
Three areas of finance: correct answers 1. *Financial Management*
-buying/selling of assets
-financing choices
-control costs
2. *Investments*
-purchasing and holding assets & securities
-stocks and bonds
3. *Financial Markets*
-capital markets
-money markets
-financial intermediaries (banks or credit unions)
Productive assets correct answers the long-term tangible and intangible *assets* a firm uses *to
generate cash flows*
Tangible = equipment etc.
intangible = patents, trademarks, technical experience
when purchase productive assets = *capital budgeting*
Financial Managers should make decisions that maximize correct answers the *value of the
owner's stock*
which helps maximize the *owner's wealth* (the economic value of the assets the owners
possesses)
,Stakeholder correct answers anyone other than the owner (stockholder) with a claim on the cash
flows of a firm (employees, customers, creditors, suppliers, the government)
3 fundamental decisions in financial management correct answers a. *Capital budgeting*- which
productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through selling long term
*debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets and liabilities*.
Enough money to *pay the bills* and any money left over is invested to earn a return
Capital Budgeting correct answers *which productive assets* the firm *should purchase* and
how much money the firm can afford to spend
*long term assets* on balance sheets/investments/ productive assets both tangible and intangible
Financing decisions correct answers how firms raise cash to pay for their iterm-55nvestments
ex: productive assets financed by long term borrowing or equity investment
debt financing - advantage=tax deductable
but increase firms risk because contractual obligation to make interest payments
equity- has no maturity/guarantee of payments.
*long term liability (debt) and equity*
Working capital management decisions correct answers how to manage the firm's *current assets
and current liabilities*
, *day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
Capital structure correct answers the mix of debt and equity that is used to finance a firm
Net working capital correct answers the dollar difference between total current assets and total
current liabilities
Capital Markets correct answers financial markets where equity and debt instruments with
maturities greater than one year are traded
Residual Cash Flow correct answers cash remaining after a firm has paid operating expenses and
what it owes creditors and taxes, can be distributed to owners as cash dividend or by
repurchasing shares or reinvested into business
Cash flows between firms and stake/stockholders correct answers A. Cash flows generated by
productive assets through sale of goods/services → management invests in current and
productive long term assets → cash paid as wages, to suppliers, as interest, as taxes → to
employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
→ cash reinvested in business
→ cash used to pay dividends/repurchase shares
Forms of Business Organization correct answers 1. *Sole proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
