Fundamentals of Finance: Chapter 1 -
Introduction to Corporate Finance
What are the four basic areas of finance? - Answer- 1. Corporate Finance
2. Investments
3. Financial Institutions
4. International Finance
What are the three types of financial management decisions? - Answer- 1. Capital budgeting
2. Capital structure
3. Working capital management
What question is capital budgeting designed to answer? - Answer- What long-term investments or
projects should the business take on?
What question is capital structure designed to answer? - Answer- How should we pay for our
assets?
Should we use debt or equity?
What question is working capital management designed to answer? - Answer- How do we manage
the day-to-day finances of the firm?
What are the three major forms of business organization? - Answer- Sole proprietorship
Partnership
Corporation
What is the goal of financial management? - Answer- Maximize shareholder value
What are agency problems? - Answer- Conflict of interest between principal (shareholder) and
agent (management)
The top financial manager within a firm is usually the - Answer- Chief Financial Officer (CFO)
Treasurer - Answer- oversees cash management, credit management, capital expenditures and
financial planning
Controller - Answer- oversees taxes, cost accounting, financial accounting and data processing
Sole proprietorship - Answer- single owner
Sole Proprietorship Advantages - Answer- Easiest to start
Least regulated
Single owner keeps all the profits
Taxed once as personal income
Sole Proprietorship Disadvantages - Answer- Limited to life of owner
Equity capital limited to owner's personal wealth
Introduction to Corporate Finance
What are the four basic areas of finance? - Answer- 1. Corporate Finance
2. Investments
3. Financial Institutions
4. International Finance
What are the three types of financial management decisions? - Answer- 1. Capital budgeting
2. Capital structure
3. Working capital management
What question is capital budgeting designed to answer? - Answer- What long-term investments or
projects should the business take on?
What question is capital structure designed to answer? - Answer- How should we pay for our
assets?
Should we use debt or equity?
What question is working capital management designed to answer? - Answer- How do we manage
the day-to-day finances of the firm?
What are the three major forms of business organization? - Answer- Sole proprietorship
Partnership
Corporation
What is the goal of financial management? - Answer- Maximize shareholder value
What are agency problems? - Answer- Conflict of interest between principal (shareholder) and
agent (management)
The top financial manager within a firm is usually the - Answer- Chief Financial Officer (CFO)
Treasurer - Answer- oversees cash management, credit management, capital expenditures and
financial planning
Controller - Answer- oversees taxes, cost accounting, financial accounting and data processing
Sole proprietorship - Answer- single owner
Sole Proprietorship Advantages - Answer- Easiest to start
Least regulated
Single owner keeps all the profits
Taxed once as personal income
Sole Proprietorship Disadvantages - Answer- Limited to life of owner
Equity capital limited to owner's personal wealth
