FIN 300 EXAM 1 -CSU STEIN QUESTIONS AND ANSWERS
4 basic areas of finance - CORRECT ANSWER✅✅-corporate finance=business finance
-investments
-financial institutions
-international finance (exchange rates, country customs)
sole proprietorship - CORRECT ANSWER✅✅owned by one person
-pros: easiest to start, least regulated, single owner keeps all of the profits, taxed once as personal
income
-cons: limited to life of owner, equity capital limited to owner's personal wealth, unlimited liability,
difficult to sell ownership interest
partnership - CORRECT ANSWER✅✅two or more owners
-pros: 2+ owners, more capital available, relatively easy to start, income taxed once as personal income
-cons: unlimited liability, partnership dissolves when one partner dies or wishes to sell, difficult to
transfer ownership
coporation - CORRECT ANSWER✅✅a legal person distinct from owners and resident of the state
-pros: limited liability, unlimited life, separation of ownership and management, easy transfer of
ownership, easiest to raise capital
-cons: separation of ownership and management (agency problem), double taxation (income taxed at
the corporate rate and then dividends taxed at personal rate, while dividends paid are not tax
deductible)
the agency problem - CORRECT ANSWER✅✅agency relationship: principle hires agent to represent its
interests, stockholders hire managers to run company
problem: conflict of interest between principle and agent
balance sheet - CORRECT ANSWER✅✅snapshot of the firm's assets and liabilities at a given point in
time
4 basic areas of finance - CORRECT ANSWER✅✅-corporate finance=business finance
-investments
-financial institutions
-international finance (exchange rates, country customs)
sole proprietorship - CORRECT ANSWER✅✅owned by one person
-pros: easiest to start, least regulated, single owner keeps all of the profits, taxed once as personal
income
-cons: limited to life of owner, equity capital limited to owner's personal wealth, unlimited liability,
difficult to sell ownership interest
partnership - CORRECT ANSWER✅✅two or more owners
-pros: 2+ owners, more capital available, relatively easy to start, income taxed once as personal income
-cons: unlimited liability, partnership dissolves when one partner dies or wishes to sell, difficult to
transfer ownership
coporation - CORRECT ANSWER✅✅a legal person distinct from owners and resident of the state
-pros: limited liability, unlimited life, separation of ownership and management, easy transfer of
ownership, easiest to raise capital
-cons: separation of ownership and management (agency problem), double taxation (income taxed at
the corporate rate and then dividends taxed at personal rate, while dividends paid are not tax
deductible)
the agency problem - CORRECT ANSWER✅✅agency relationship: principle hires agent to represent its
interests, stockholders hire managers to run company
problem: conflict of interest between principle and agent
balance sheet - CORRECT ANSWER✅✅snapshot of the firm's assets and liabilities at a given point in
time
