PRINCIPLES OF CORPORATE FINANCE BY
RICHARD PRACTICE TEST 2026 WORKED
SOLUTIONS
What are the five main areas of finance? Answer: Corporate finance,
Investments,
Financial Institutions,
International finance,
Fintech
◉ Capital Budgeting Answer: the process of planning and managing
a firm's long-term investments
◉ Capital Structure Answer: the specific mixture of long-term debt
and equity the firm uses to finance its operations
◉ Working Capital Answer: a firm's short-term assets and liabilities
◉ Three areas of corporate financial management: Answer: Capital
budgeting,
capital structure,
working capital
,◉ Sole Proprietorship Answer: A business owned by one person
◉ Partnership Answer: A business in which two or more persons
combine their assets and skills
◉ Limited Partnership Answer: One or more general partners and
one or more limited partners who will not be involved with the
business.
◉ Primary disadvantage of sole proprietorship: Answer: The ability
of such businesses to grow can be seriously limited in an inability to
raise cash for investment.
◉ Corporation Answer: A legal "person", separate and distinct from
its owners, and it has many of the rights, duties, and privileges of an
actual person. Can borrow money and own property, sue/be sued,
enter into contracts.
◉ Joint Stock Companies Answer: A company whose stock is owned
jointly by the shareholders.
◉ Public Limited Companies Answer: Companies who shares are
sold to financial institutions and the general public and quoted on
the stock exchange
, ◉ Limited Liability Companies (LLC) Answer: A hybrid form of
business enterprise that offers the limited liability of the corporation
but the tax advantages of a partnership.
◉ Benefit Corporation Answer: A for-profit corporation that seeks to
have a material positive impact on society and the environment. This
new business form is available by statute in a growing number of
states.
◉ Purpose (benefit corporation) Answer: The idea that a benefit
corporation must provide a public benefit, either to society as a
whole or the environment.
◉ What is the goal of financial management? Answer: To maximize
the current value per share of the existing stock.
◉ Sarbanes-Oxley Act of 2002 (a.k.a. SOX) Answer: Requires that the
CEO and CFO of large companies that have publicly traded stock
personally certify that financial reports made to the SEC comply
with SEC rules and that info in the reports are accurate.
◉ Agency Relationship Answer: Relationship between stockholders
and management
RICHARD PRACTICE TEST 2026 WORKED
SOLUTIONS
What are the five main areas of finance? Answer: Corporate finance,
Investments,
Financial Institutions,
International finance,
Fintech
◉ Capital Budgeting Answer: the process of planning and managing
a firm's long-term investments
◉ Capital Structure Answer: the specific mixture of long-term debt
and equity the firm uses to finance its operations
◉ Working Capital Answer: a firm's short-term assets and liabilities
◉ Three areas of corporate financial management: Answer: Capital
budgeting,
capital structure,
working capital
,◉ Sole Proprietorship Answer: A business owned by one person
◉ Partnership Answer: A business in which two or more persons
combine their assets and skills
◉ Limited Partnership Answer: One or more general partners and
one or more limited partners who will not be involved with the
business.
◉ Primary disadvantage of sole proprietorship: Answer: The ability
of such businesses to grow can be seriously limited in an inability to
raise cash for investment.
◉ Corporation Answer: A legal "person", separate and distinct from
its owners, and it has many of the rights, duties, and privileges of an
actual person. Can borrow money and own property, sue/be sued,
enter into contracts.
◉ Joint Stock Companies Answer: A company whose stock is owned
jointly by the shareholders.
◉ Public Limited Companies Answer: Companies who shares are
sold to financial institutions and the general public and quoted on
the stock exchange
, ◉ Limited Liability Companies (LLC) Answer: A hybrid form of
business enterprise that offers the limited liability of the corporation
but the tax advantages of a partnership.
◉ Benefit Corporation Answer: A for-profit corporation that seeks to
have a material positive impact on society and the environment. This
new business form is available by statute in a growing number of
states.
◉ Purpose (benefit corporation) Answer: The idea that a benefit
corporation must provide a public benefit, either to society as a
whole or the environment.
◉ What is the goal of financial management? Answer: To maximize
the current value per share of the existing stock.
◉ Sarbanes-Oxley Act of 2002 (a.k.a. SOX) Answer: Requires that the
CEO and CFO of large companies that have publicly traded stock
personally certify that financial reports made to the SEC comply
with SEC rules and that info in the reports are accurate.
◉ Agency Relationship Answer: Relationship between stockholders
and management
