FINC 300 Exam 1 || A+ Guaranteed.
Stakeholder correct answers -Has a stake in the company
-Anyone (other than an owner) who has a claim on the cash flows of a firm/company
-Should have 0% input in the company
What are some examples of stakeholders? correct answers Employees, suppliers, creditors,
governments,
Cash flows correct answers -Cash profits on paper; are "king"
Why are cash flows considered "king"? correct answers That is what increases the value of a
company
Productive assets correct answers Assets that generate cash flow
What are some examples of productive assets? correct answers Condo, rent out dividend, stock
Residual cash flows correct answers What's left after a company pays its operating expenses and
taxes
What are the three key financial decisions? correct answers Capital budgeting, financing, and
working capital management
Capital budgeting correct answers -Most important
-Deciding which productive asset to acquire
-Long lived assets on balance sheet
-If today's value of the expected cash flows are greater than the cost of the project, then accept it.
Financing correct answers -"Where am I going to get money to do stuff?"
-Deciding how to finance those assets with the optimal combination of debt and equity
-Recommending how much residual cash to pay out as dividends.
Working capital management correct answers -Managing working capital so the company can
pay bills and invest any surplus
Working capital = correct answers Current assets-current liabilities
Sole Proprietorship correct answers -One owner
-Day job; do stuff on the side
Sole proprietorship advantages correct answers -Ease of formation
-Subject to few regulations
-No corporate income tax
Sole proprietorship disadvantages correct answers -Difficult to transfer ownership
, -Difficult to raise capital
-Unlimited liability
-Limited life
Partnership correct answers -A business owned by more than one person
-One or more of them is financially responsible for the actions and obligations of the business
General partnership correct answers All partners have unlimited liability
Limited partnership correct answers -Partners have limited liability, but do not have say so in
day-to-day operations
-"silent partners"
-One partner has to be a general partner, can have other limited partners
Corporation correct answers More than one owner, more money
Describe the "legal shell" wrapped around corporations correct answers You can't sue the owners
of a corporation for everything they have, just their "shell"
S Corp correct answers Can only have one class of stock and less than 100 shareholders
S Corp advantages correct answers -Limited liability
-Indefinite life
-Easier to change ownership
-Easier access to sources of funds/capital
S Corp disadvantages correct answers -Double taxation (biggest disadvantage)
-Most difficult and expensive to establish; more regulations
-Dilutes individual control over the firm
-Possibly overall higher taxes on income for shareholders
How are C corp's taxed? correct answers As businesses
How are S corp's taxed? correct answers At personal levels
What is the percentage of C corp? correct answers ~1%; very low
Describe the chief executive officer (CEO) position correct answers -Chief manager in the firm
-Ultimate power to make decisions and ultimate responsibility for decisions
-Reports directly to the board of directors who are supposed to protect the shareholders' interests
What is the role of the chief financial officer (CFO)? correct answers Responsible for financial
decisions and reporting
Treasurer correct answers Manages and reports on the collection and disbursement of cash
Stakeholder correct answers -Has a stake in the company
-Anyone (other than an owner) who has a claim on the cash flows of a firm/company
-Should have 0% input in the company
What are some examples of stakeholders? correct answers Employees, suppliers, creditors,
governments,
Cash flows correct answers -Cash profits on paper; are "king"
Why are cash flows considered "king"? correct answers That is what increases the value of a
company
Productive assets correct answers Assets that generate cash flow
What are some examples of productive assets? correct answers Condo, rent out dividend, stock
Residual cash flows correct answers What's left after a company pays its operating expenses and
taxes
What are the three key financial decisions? correct answers Capital budgeting, financing, and
working capital management
Capital budgeting correct answers -Most important
-Deciding which productive asset to acquire
-Long lived assets on balance sheet
-If today's value of the expected cash flows are greater than the cost of the project, then accept it.
Financing correct answers -"Where am I going to get money to do stuff?"
-Deciding how to finance those assets with the optimal combination of debt and equity
-Recommending how much residual cash to pay out as dividends.
Working capital management correct answers -Managing working capital so the company can
pay bills and invest any surplus
Working capital = correct answers Current assets-current liabilities
Sole Proprietorship correct answers -One owner
-Day job; do stuff on the side
Sole proprietorship advantages correct answers -Ease of formation
-Subject to few regulations
-No corporate income tax
Sole proprietorship disadvantages correct answers -Difficult to transfer ownership
, -Difficult to raise capital
-Unlimited liability
-Limited life
Partnership correct answers -A business owned by more than one person
-One or more of them is financially responsible for the actions and obligations of the business
General partnership correct answers All partners have unlimited liability
Limited partnership correct answers -Partners have limited liability, but do not have say so in
day-to-day operations
-"silent partners"
-One partner has to be a general partner, can have other limited partners
Corporation correct answers More than one owner, more money
Describe the "legal shell" wrapped around corporations correct answers You can't sue the owners
of a corporation for everything they have, just their "shell"
S Corp correct answers Can only have one class of stock and less than 100 shareholders
S Corp advantages correct answers -Limited liability
-Indefinite life
-Easier to change ownership
-Easier access to sources of funds/capital
S Corp disadvantages correct answers -Double taxation (biggest disadvantage)
-Most difficult and expensive to establish; more regulations
-Dilutes individual control over the firm
-Possibly overall higher taxes on income for shareholders
How are C corp's taxed? correct answers As businesses
How are S corp's taxed? correct answers At personal levels
What is the percentage of C corp? correct answers ~1%; very low
Describe the chief executive officer (CEO) position correct answers -Chief manager in the firm
-Ultimate power to make decisions and ultimate responsibility for decisions
-Reports directly to the board of directors who are supposed to protect the shareholders' interests
What is the role of the chief financial officer (CFO)? correct answers Responsible for financial
decisions and reporting
Treasurer correct answers Manages and reports on the collection and disbursement of cash
