BFIN 300 Midterm Exam Questions with 100%
Correct Answers
Capital Budgeting
The identification of investing opportunities that are worth more to the business today than
they cost to acquire.
Capital Structure Process Decisions
Financing decisions, are we going to use l/t debt vs s/t debt, are we going to use debt v equity,
how much do we need to borrow? Cost of borrowings, and how and where to raise the
money. Decision of one financial structure over another is at the heart
Working capital management
Managing short term assets and short term liabilities. E.G. Checking account, cash coming in
v. monthly payments. Ensures that the business has sufficient cash or liquidity to run without
interruption.
Forms of business
sole proprietorship, partnership, corporation
Sole Proprietorship
a business owned by one person. Simplest form of business there is, owner takes all liability.
(unlimited) E.G. Lawn mowing business
Partnership
similar to sole proprietorship, but you have two or more people.
General Partnership
, partnership in which partners share equally in both responsibility and liability
limited partnership
form of partnership where one or more partners are not active in the daily running of the
business, and whose liability for the partnership's debt is restricted to the amount invested in
the business
Corporation
a business that is separate and distinct from its shareholders, considered a legal person.
double taxation
taxation of dividends both as corporate profit and as personal income
Goals of Financial Management
maximize shareholder value. The goal is learning how to identify investments and
arrangements that positively affect share prices.
Corporate Finance
the study of the relationship between business decisions and maximizing the value of the
business
Sarbanes-Oxley Act
enacted by congress, requires each public company to provide an assessment of their internal
controls and their financial reporting. Requires independent auditor to manage the
assessment. Auditor must sign off on internal controls.
Agency Relationship
relationship between stockholders and management
Correct Answers
Capital Budgeting
The identification of investing opportunities that are worth more to the business today than
they cost to acquire.
Capital Structure Process Decisions
Financing decisions, are we going to use l/t debt vs s/t debt, are we going to use debt v equity,
how much do we need to borrow? Cost of borrowings, and how and where to raise the
money. Decision of one financial structure over another is at the heart
Working capital management
Managing short term assets and short term liabilities. E.G. Checking account, cash coming in
v. monthly payments. Ensures that the business has sufficient cash or liquidity to run without
interruption.
Forms of business
sole proprietorship, partnership, corporation
Sole Proprietorship
a business owned by one person. Simplest form of business there is, owner takes all liability.
(unlimited) E.G. Lawn mowing business
Partnership
similar to sole proprietorship, but you have two or more people.
General Partnership
, partnership in which partners share equally in both responsibility and liability
limited partnership
form of partnership where one or more partners are not active in the daily running of the
business, and whose liability for the partnership's debt is restricted to the amount invested in
the business
Corporation
a business that is separate and distinct from its shareholders, considered a legal person.
double taxation
taxation of dividends both as corporate profit and as personal income
Goals of Financial Management
maximize shareholder value. The goal is learning how to identify investments and
arrangements that positively affect share prices.
Corporate Finance
the study of the relationship between business decisions and maximizing the value of the
business
Sarbanes-Oxley Act
enacted by congress, requires each public company to provide an assessment of their internal
controls and their financial reporting. Requires independent auditor to manage the
assessment. Auditor must sign off on internal controls.
Agency Relationship
relationship between stockholders and management
