1|Page
ASU FIN 300 Exam 1 (Ch 1-4) EXAM ELABORATIONS
QUESTIONS AND VERIFIED ANSWERS 2026
Financial Managers should make decisions that maximize
......ANSWER......the *value of the owner's stock*
which helps maximize the *owner's wealth* (the economic value of the
assets the owners possesses)
Stakeholder ......ANSWER......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 ......ANSWER......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 ......ANSWER......*which productive assets* the firm
*should purchase* and how much money the firm can afford to spend
pg. 1
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*long term assets* on balance sheets/investments/ productive assets
both tangible and intangible
Financing decisions ......ANSWER......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 ......ANSWER......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*
pg. 2
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-*profitability affected*
Capital structure ......ANSWER......the mix of debt and equity that is
used to finance a firm
Net working capital ......ANSWER......the dollar difference between total
current assets and total current liabilities
Capital Markets ......ANSWER......financial markets where equity and
debt instruments with maturities greater than one year are traded
Residual Cash Flow ......ANSWER......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 ......ANSWER......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
pg. 3
, 4|Page
Forms of Business Organization ......ANSWER......1. *Sole
proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional
management, corporate income taxed twice, conflicting goals between
owners and management
d. LLC- owners not personally responsible, combine corporation with
sole proprietorship
Sole proprietorship ......ANSWER......-owner = *1 person*
-*taxes*= as *personal* income, paid once
-*liability= all to owner*
-life = limited to owner, no stock to sell
-*capital = very limited / difficult* to raise
-owner/manager conflict = no
-least expensive
pg. 4
ASU FIN 300 Exam 1 (Ch 1-4) EXAM ELABORATIONS
QUESTIONS AND VERIFIED ANSWERS 2026
Financial Managers should make decisions that maximize
......ANSWER......the *value of the owner's stock*
which helps maximize the *owner's wealth* (the economic value of the
assets the owners possesses)
Stakeholder ......ANSWER......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 ......ANSWER......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 ......ANSWER......*which productive assets* the firm
*should purchase* and how much money the firm can afford to spend
pg. 1
,2|Page
*long term assets* on balance sheets/investments/ productive assets
both tangible and intangible
Financing decisions ......ANSWER......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 ......ANSWER......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*
pg. 2
,3|Page
-*profitability affected*
Capital structure ......ANSWER......the mix of debt and equity that is
used to finance a firm
Net working capital ......ANSWER......the dollar difference between total
current assets and total current liabilities
Capital Markets ......ANSWER......financial markets where equity and
debt instruments with maturities greater than one year are traded
Residual Cash Flow ......ANSWER......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 ......ANSWER......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
pg. 3
, 4|Page
Forms of Business Organization ......ANSWER......1. *Sole
proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional
management, corporate income taxed twice, conflicting goals between
owners and management
d. LLC- owners not personally responsible, combine corporation with
sole proprietorship
Sole proprietorship ......ANSWER......-owner = *1 person*
-*taxes*= as *personal* income, paid once
-*liability= all to owner*
-life = limited to owner, no stock to sell
-*capital = very limited / difficult* to raise
-owner/manager conflict = no
-least expensive
pg. 4
