FI 320 - Exam 1 (MSU) Questions And
Outlined Answers
\Q\.Three major forms of business in the United States - ANSWERS✔-Sole
Proprietorship
Partnership
Corporation
\Q\.Sole Proprietorship Advantages - ANSWERS✔--Easiest to start
-Least regulated (from a structural standpoint)
-Single owner keeps all the profits
-Taxed once as personal income
\Q\.Sole Proprietorship Disadvantages - ANSWERS✔--Limited to life of owner
-Equity capital limited to owner's personal wealth (can't sell stock)
-Unlimited liability (everything you own is on the line)
-Usually difficult to sell ownership interest
\Q\.Partnership Advantages - ANSWERS✔--Two or more owners
-More capital available
-Relatively easy to start
, -Income taxed once as personal income
\Q\.Partnership Disadvantages - ANSWERS✔--Unlimited liability
-Partnership dissolves
-Often difficult to transfer ownership
\Q\.Corporation Advantages - ANSWERS✔--Limited liability
-Unlimited life
-Transfer of ownership is usually relatively easy
-Often easier to raise capital
\Q\.Corporation Disadvantages - ANSWERS✔--More paperwork
-Double taxation
\Q\.Goal of Financial Management - ANSWERS✔--To maximize the current market
value of the existing stock.
-Maximize the value of the owner's stake in the company.
-Make the owners wealthy.
\Q\.Agency Relationship - ANSWERS✔-A person or business that is employed by
another person or organization that acts on their behalf (for the company's best
interest)
\Q\.Agency Problem - ANSWERS✔-An issue with the interests of an agency
Outlined Answers
\Q\.Three major forms of business in the United States - ANSWERS✔-Sole
Proprietorship
Partnership
Corporation
\Q\.Sole Proprietorship Advantages - ANSWERS✔--Easiest to start
-Least regulated (from a structural standpoint)
-Single owner keeps all the profits
-Taxed once as personal income
\Q\.Sole Proprietorship Disadvantages - ANSWERS✔--Limited to life of owner
-Equity capital limited to owner's personal wealth (can't sell stock)
-Unlimited liability (everything you own is on the line)
-Usually difficult to sell ownership interest
\Q\.Partnership Advantages - ANSWERS✔--Two or more owners
-More capital available
-Relatively easy to start
, -Income taxed once as personal income
\Q\.Partnership Disadvantages - ANSWERS✔--Unlimited liability
-Partnership dissolves
-Often difficult to transfer ownership
\Q\.Corporation Advantages - ANSWERS✔--Limited liability
-Unlimited life
-Transfer of ownership is usually relatively easy
-Often easier to raise capital
\Q\.Corporation Disadvantages - ANSWERS✔--More paperwork
-Double taxation
\Q\.Goal of Financial Management - ANSWERS✔--To maximize the current market
value of the existing stock.
-Maximize the value of the owner's stake in the company.
-Make the owners wealthy.
\Q\.Agency Relationship - ANSWERS✔-A person or business that is employed by
another person or organization that acts on their behalf (for the company's best
interest)
\Q\.Agency Problem - ANSWERS✔-An issue with the interests of an agency
