ASU FIN 300 CORRECT FINALS QUESTIONS AND
ANSWERS SURE A+
✔✔Working capital management decisions - ✔✔how to manage the firm's *current
assets and current liabilities*
*day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
✔✔Capital structure - ✔✔the mix of debt and equity that is used to finance a firm
✔✔Net working capital - ✔✔the dollar difference between total current assets and total
current liabilities
✔✔Capital Markets - ✔✔financial markets where equity and debt instruments with
maturities greater than one year are traded
✔✔Residual Cash Flow - ✔✔cash remaining after a firm has paid operating expenses
and what it owes creditors and taxes, can be distributed to owners as cash dividend or
by repurchasing shares or reinvested into business
✔✔Cash flows between firms and stake/stockholders - ✔✔A. Cash flows generated by
productive assets through sale of goods/services → management invests in current and
productive long term assets → cash paid as wages, to suppliers, as interest, as taxes →
to employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
→ cash reinvested in business
→ cash used to pay dividends/repurchase shares
✔✔Forms of Business Organization - ✔✔1. *Sole proprietorship*- one person
,2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional management,
corporate income taxed twice, conflicting goals between owners and management
d. LLC- owners not personally responsible, combine corporation with sole proprietorship
✔✔Sole proprietorship - ✔✔-owner = *1 person*
-*taxes*= as *personal* income, paid once
-*liability= all to owner*
-life = limited to owner, no stock to sell
-*capital = very limited / difficult* to raise
-owner/manager conflict = no
-least expensive
✔✔General Partnership - ✔✔-owner = *2+ people*
all *owners and managers*
-*taxes*= *to partners*, deductions available
-*liability= all to partners* (*responsible for others* partners actions)
-*life = flexible* limited to partners but can be transferred
-*capital = limited*
-owner/manager conflict = no
-harder to sell shares
✔✔Limited Partnership - ✔✔Same as general except:
*liability = only up to amount* capital invested in
-*capital = less limited*
-owner/manager *conflict = some*
-harder to sell shares
*limited partners* are owners but *cannot be managing* -limited in decision making
✔✔Limited Liability Partnership / Company (LLP / LCC) - ✔✔-for professional/licensed
hybrid business organizations that combine some of the advantages of corporations and
partnerships
-income to the partners *taxed only as personal income*
-*partners have limited liability*
capital = less limited
conflict = some
, life = flexible can be transferred
✔✔Corporation - ✔✔*A legal entity ("person")* chartered by a state or the federal
government that is *distinct and separate* *from owners*
liability of owners/stockholders = limited b/c corp takes action in its own name
-costly to start
-capital = good/less limited
*life = indefinite*
*conflict = high*
-shares = easy to sell
✔✔C Corporation - ✔✔The *most common* type of corporation, which is a legal entity,
*public* that offers
*limited liability to owners*
*taxed = doubled*
at corporate and personal (on income earned and dividends)
*capital = excellent* access
✔✔S Corporation - ✔✔*private* corporation
-*restrictions = less than 100 stockholders
-only one class of stock
taxed = as partnership
capital= less limited
✔✔Public markets - ✔✔markets *regulated by the SEC* in which securities (stocks and
bonds) are *traded publicly*
✔✔Privately held corporations - ✔✔*small # of investors*
shares not traded publicly
✔✔Why not to maximize profit when managing a firm? - ✔✔-what is profit hard to
measure
-time value of money
-risk of cash flows
-ignores value of dollar at different risk levels
-does not directly account for cash flows
✔✔The goal of the firm - ✔✔*maximize* shareholder wealth / *owner's equity*
aka maximize the *current value of the firm's stock*
ANSWERS SURE A+
✔✔Working capital management decisions - ✔✔how to manage the firm's *current
assets and current liabilities*
*day to day* management of short term asserts and liabilities
-mismanagement cause firm to go into debt/*bankruptcy*
-*profitability affected*
✔✔Capital structure - ✔✔the mix of debt and equity that is used to finance a firm
✔✔Net working capital - ✔✔the dollar difference between total current assets and total
current liabilities
✔✔Capital Markets - ✔✔financial markets where equity and debt instruments with
maturities greater than one year are traded
✔✔Residual Cash Flow - ✔✔cash remaining after a firm has paid operating expenses
and what it owes creditors and taxes, can be distributed to owners as cash dividend or
by repurchasing shares or reinvested into business
✔✔Cash flows between firms and stake/stockholders - ✔✔A. Cash flows generated by
productive assets through sale of goods/services → management invests in current and
productive long term assets → cash paid as wages, to suppliers, as interest, as taxes →
to employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
→ cash reinvested in business
→ cash used to pay dividends/repurchase shares
✔✔Forms of Business Organization - ✔✔1. *Sole proprietorship*- one person
,2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional management,
corporate income taxed twice, conflicting goals between owners and management
d. LLC- owners not personally responsible, combine corporation with sole proprietorship
✔✔Sole proprietorship - ✔✔-owner = *1 person*
-*taxes*= as *personal* income, paid once
-*liability= all to owner*
-life = limited to owner, no stock to sell
-*capital = very limited / difficult* to raise
-owner/manager conflict = no
-least expensive
✔✔General Partnership - ✔✔-owner = *2+ people*
all *owners and managers*
-*taxes*= *to partners*, deductions available
-*liability= all to partners* (*responsible for others* partners actions)
-*life = flexible* limited to partners but can be transferred
-*capital = limited*
-owner/manager conflict = no
-harder to sell shares
✔✔Limited Partnership - ✔✔Same as general except:
*liability = only up to amount* capital invested in
-*capital = less limited*
-owner/manager *conflict = some*
-harder to sell shares
*limited partners* are owners but *cannot be managing* -limited in decision making
✔✔Limited Liability Partnership / Company (LLP / LCC) - ✔✔-for professional/licensed
hybrid business organizations that combine some of the advantages of corporations and
partnerships
-income to the partners *taxed only as personal income*
-*partners have limited liability*
capital = less limited
conflict = some
, life = flexible can be transferred
✔✔Corporation - ✔✔*A legal entity ("person")* chartered by a state or the federal
government that is *distinct and separate* *from owners*
liability of owners/stockholders = limited b/c corp takes action in its own name
-costly to start
-capital = good/less limited
*life = indefinite*
*conflict = high*
-shares = easy to sell
✔✔C Corporation - ✔✔The *most common* type of corporation, which is a legal entity,
*public* that offers
*limited liability to owners*
*taxed = doubled*
at corporate and personal (on income earned and dividends)
*capital = excellent* access
✔✔S Corporation - ✔✔*private* corporation
-*restrictions = less than 100 stockholders
-only one class of stock
taxed = as partnership
capital= less limited
✔✔Public markets - ✔✔markets *regulated by the SEC* in which securities (stocks and
bonds) are *traded publicly*
✔✔Privately held corporations - ✔✔*small # of investors*
shares not traded publicly
✔✔Why not to maximize profit when managing a firm? - ✔✔-what is profit hard to
measure
-time value of money
-risk of cash flows
-ignores value of dollar at different risk levels
-does not directly account for cash flows
✔✔The goal of the firm - ✔✔*maximize* shareholder wealth / *owner's equity*
aka maximize the *current value of the firm's stock*
