Corporate Finance - Exam 1 UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
What is corporate finance? - Correct answers✔✔What assets a company should buy
What projects to invest in
How to raise cash to finance these investments
in order to MAINTAIN AND MAXIMIZE ECONOMIC VALUE
Ultimately, the firm must be a __ - Correct answers✔✔cash generating activity
The cash flows from the firm must __ the cash flows from the financial markets - Correct
answers✔✔exceed
2 main questions - Correct answers✔✔1. Capital budgeting
2. Capital structure
Capital budgeting decision - Correct answers✔✔What long-term investments should the firm
choose?
Fixed Assets
Capital structure decision - Correct answers✔✔How should the firm raise funds for the selected
investments
Liabilities and SH Equity
,Ultimate goal of financial managers - Correct answers✔✔Shareholder wealth maximization
= maximizing firm value
= maximizing stock price
SH wealth - Correct answers✔✔stock price (fluctuates, want to maximize) * shares outstanding
(relatively stable)
Financial analyst reports are ___ looking - Correct answers✔✔forward
Annual and quarterly reports are __ looking - Correct answers✔✔backward
Media is ___ information - Correct answers✔✔current
Financial analyst reports, annual and quarterly reports, and media are all ___ information -
Correct answers✔✔public
Insider trading - Correct answers✔✔any time a person trades while aware of material nonpublic
information
Illegal
Mr. Rajaratnam sentenced to 11 years - tips from company executives and technology
consultants
Tips from Goldman Sachs director, classmate - got advanced warning of Warren Buffet
investment
, types of financial statements - Correct answers✔✔balance sheet
income statement
accounting cash flow statement
finance cash flow statement
other
balance sheet - Correct answers✔✔firm's accounting value at a specific point in time
assets go from most liquid to least liquid
liabilities go from debt (current to long-term) to SHE
liquidity - Correct answers✔✔the ease and quickness with which assets can be converted to cash
without a significant loss in value
NWC - Correct answers✔✔measure of short-term liquidity
current assets - current liabilities
higher liquidity means - Correct answers✔✔advantages:
lower probability of running into financial difficulties
more flexibility to firms
disadvantages:
lower rates of return
ACTUAL QUESTIONS AND CORRECT
ANSWERS
What is corporate finance? - Correct answers✔✔What assets a company should buy
What projects to invest in
How to raise cash to finance these investments
in order to MAINTAIN AND MAXIMIZE ECONOMIC VALUE
Ultimately, the firm must be a __ - Correct answers✔✔cash generating activity
The cash flows from the firm must __ the cash flows from the financial markets - Correct
answers✔✔exceed
2 main questions - Correct answers✔✔1. Capital budgeting
2. Capital structure
Capital budgeting decision - Correct answers✔✔What long-term investments should the firm
choose?
Fixed Assets
Capital structure decision - Correct answers✔✔How should the firm raise funds for the selected
investments
Liabilities and SH Equity
,Ultimate goal of financial managers - Correct answers✔✔Shareholder wealth maximization
= maximizing firm value
= maximizing stock price
SH wealth - Correct answers✔✔stock price (fluctuates, want to maximize) * shares outstanding
(relatively stable)
Financial analyst reports are ___ looking - Correct answers✔✔forward
Annual and quarterly reports are __ looking - Correct answers✔✔backward
Media is ___ information - Correct answers✔✔current
Financial analyst reports, annual and quarterly reports, and media are all ___ information -
Correct answers✔✔public
Insider trading - Correct answers✔✔any time a person trades while aware of material nonpublic
information
Illegal
Mr. Rajaratnam sentenced to 11 years - tips from company executives and technology
consultants
Tips from Goldman Sachs director, classmate - got advanced warning of Warren Buffet
investment
, types of financial statements - Correct answers✔✔balance sheet
income statement
accounting cash flow statement
finance cash flow statement
other
balance sheet - Correct answers✔✔firm's accounting value at a specific point in time
assets go from most liquid to least liquid
liabilities go from debt (current to long-term) to SHE
liquidity - Correct answers✔✔the ease and quickness with which assets can be converted to cash
without a significant loss in value
NWC - Correct answers✔✔measure of short-term liquidity
current assets - current liabilities
higher liquidity means - Correct answers✔✔advantages:
lower probability of running into financial difficulties
more flexibility to firms
disadvantages:
lower rates of return
