Fin 320 Chapters 1-3 Exam
Questions with Correct
Answers
corporate finance - Correct Answers: managerial monetary business decisions
chief financial officer (CFO) - Correct Answers: top financial manager
treasurer - Correct Answers: oversees cash management, credit management, capital expenditures,
financial planning
controller - Correct Answers: oversees taxes, cost accounting, financial accounting, data processing
capital budgeting - Correct Answers: what long-term investments or projects should the business take
on?
process of planning and investing in fixed assets
capital structure - Correct Answers: how should we pay for our assets?
should we use debt or equity?
cash (least expensive), debt, equity (most expensive)
working capital management - Correct Answers: how do we manage the day-to-day finances of the firm?
short term assets and liabilities, avoiding bankruptcy
sole proprietorship - Correct Answers: one owner, easy to start, low regulation
, partnership - Correct Answers: general = like sole proprietorship
limited = general partners and limited partners (financial sponsors)
corporation - Correct Answers: c corporation = more than 75 owners (double taxation)
s corporation = 75 or fewer owners (single taxation)
limited liability company = decision making process is different
corporation: advantages - Correct Answers: limited liability
unlimited life
separation of ownership and management
easy ownership transfer
easy to raise capital
corporation: disadvantages - Correct Answers: double taxation (corporate and personal level)
agency problem
the goal of corporation - Correct Answers: maximize current value of company's stock
agency problem - Correct Answers: conflict of interest between principal (stockholders) and agent
(managers)
management goals and agency costs
managerial compensation - Correct Answers: incentives can be used to align management and
stockholder interests
the incentives need to be structured carefully to make sure that they achieve their goal
corporate control - Correct Answers: the threat of a takeover may result in better management
Questions with Correct
Answers
corporate finance - Correct Answers: managerial monetary business decisions
chief financial officer (CFO) - Correct Answers: top financial manager
treasurer - Correct Answers: oversees cash management, credit management, capital expenditures,
financial planning
controller - Correct Answers: oversees taxes, cost accounting, financial accounting, data processing
capital budgeting - Correct Answers: what long-term investments or projects should the business take
on?
process of planning and investing in fixed assets
capital structure - Correct Answers: how should we pay for our assets?
should we use debt or equity?
cash (least expensive), debt, equity (most expensive)
working capital management - Correct Answers: how do we manage the day-to-day finances of the firm?
short term assets and liabilities, avoiding bankruptcy
sole proprietorship - Correct Answers: one owner, easy to start, low regulation
, partnership - Correct Answers: general = like sole proprietorship
limited = general partners and limited partners (financial sponsors)
corporation - Correct Answers: c corporation = more than 75 owners (double taxation)
s corporation = 75 or fewer owners (single taxation)
limited liability company = decision making process is different
corporation: advantages - Correct Answers: limited liability
unlimited life
separation of ownership and management
easy ownership transfer
easy to raise capital
corporation: disadvantages - Correct Answers: double taxation (corporate and personal level)
agency problem
the goal of corporation - Correct Answers: maximize current value of company's stock
agency problem - Correct Answers: conflict of interest between principal (stockholders) and agent
(managers)
management goals and agency costs
managerial compensation - Correct Answers: incentives can be used to align management and
stockholder interests
the incentives need to be structured carefully to make sure that they achieve their goal
corporate control - Correct Answers: the threat of a takeover may result in better management
