FINC 3610 Harrelson Final Exam Questions and
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FINC 3610 – Corporate Finance Final Exam Practice
Verified Questions & Answers (2026/2027 Update)
Course: FINC 3610 – Corporate Finance (Auburn University)
SECTION 1: GOALS OF THE FIRM & AGENCY PROBLEMS
1. Which one of the following best states the primary goal of financial
management?
A. Maximize current profits
B. Maximize the current value per share
C. Minimize costs
D. Maximize market share
Correct Answer: B. Maximize the current value per share. Rationale: The primary
goal of financial management is to maximize the current value per share of the
existing stock, which reflects shareholder wealth maximization. Maximizing profits
is short-term focused and does not account for risk or the timing of cash flows .
2. Which one of the following actions by a financial manager is most apt to
create an agency problem?
,A. Increasing current profits when doing so lowers the value of the firm's equity
B. Refusing to expand the company unless it increases shareholder value
C. Paying out excess cash as dividends rather than investing in negative NPV
projects
D. Purchasing a new machine that increases production efficiency
Correct Answer: A. Increasing current profits when doing so lowers the value of
the firm's equity. Rationale: An agency problem occurs when managers prioritize
their own interests over shareholders'. Increasing short-term profits at the expense
of long-term firm value harms shareholders .
3. Corporate dividends are:
A. Tax-free income for shareholders
B. Taxable as personal income when received by shareholders even though that
income was taxed at the corporate level
C. Deductible for the corporation
D. Taxed only at the corporate level
Correct Answer: B. Taxable as personal income when received by shareholders
even though that income was taxed at the corporate level. Rationale: This is the
concept of double taxation, which is a disadvantage of the corporate form of
organization .
4. Which of the following is a strength of a corporation?
A. Unlimited liability
B. Limited liability
C. Easy to start
D. Single taxation
Correct Answer: B. Limited liability. Rationale: Limited liability is a key strength of
corporations, protecting owners' personal assets from business debts .
, 5. Which of the following legal forms of organization is most expensive to
organize?
A. Sole proprietorship
B. Partnership
C. Corporation
D. Limited partnership
Correct Answer: C. Corporation. Rationale: Corporations are the most expensive
to organize due to legal requirements, filings, and regulatory compliance .
6. Under which of the following legal forms of organization is ownership readily
transferable?
A. Sole proprietorship
B. Partnership
C. Corporation
D. General partnership
Correct Answer: C. Corporation. Rationale: Ownership in a corporation is easily
transferred through the sale of stock .
7. Which of the following legal forms of organization has the ease of dissolution?
A. Corporation
B. Limited partnership
C. Sole proprietorship
D. Public corporation
Correct Answer: C. Sole proprietorship. Rationale: A sole proprietorship is the
easiest to dissolve because it is owned by a single individual and has no complex
legal structure .
Answers| Latest| Pass Guaranteed
FINC 3610 – Corporate Finance Final Exam Practice
Verified Questions & Answers (2026/2027 Update)
Course: FINC 3610 – Corporate Finance (Auburn University)
SECTION 1: GOALS OF THE FIRM & AGENCY PROBLEMS
1. Which one of the following best states the primary goal of financial
management?
A. Maximize current profits
B. Maximize the current value per share
C. Minimize costs
D. Maximize market share
Correct Answer: B. Maximize the current value per share. Rationale: The primary
goal of financial management is to maximize the current value per share of the
existing stock, which reflects shareholder wealth maximization. Maximizing profits
is short-term focused and does not account for risk or the timing of cash flows .
2. Which one of the following actions by a financial manager is most apt to
create an agency problem?
,A. Increasing current profits when doing so lowers the value of the firm's equity
B. Refusing to expand the company unless it increases shareholder value
C. Paying out excess cash as dividends rather than investing in negative NPV
projects
D. Purchasing a new machine that increases production efficiency
Correct Answer: A. Increasing current profits when doing so lowers the value of
the firm's equity. Rationale: An agency problem occurs when managers prioritize
their own interests over shareholders'. Increasing short-term profits at the expense
of long-term firm value harms shareholders .
3. Corporate dividends are:
A. Tax-free income for shareholders
B. Taxable as personal income when received by shareholders even though that
income was taxed at the corporate level
C. Deductible for the corporation
D. Taxed only at the corporate level
Correct Answer: B. Taxable as personal income when received by shareholders
even though that income was taxed at the corporate level. Rationale: This is the
concept of double taxation, which is a disadvantage of the corporate form of
organization .
4. Which of the following is a strength of a corporation?
A. Unlimited liability
B. Limited liability
C. Easy to start
D. Single taxation
Correct Answer: B. Limited liability. Rationale: Limited liability is a key strength of
corporations, protecting owners' personal assets from business debts .
, 5. Which of the following legal forms of organization is most expensive to
organize?
A. Sole proprietorship
B. Partnership
C. Corporation
D. Limited partnership
Correct Answer: C. Corporation. Rationale: Corporations are the most expensive
to organize due to legal requirements, filings, and regulatory compliance .
6. Under which of the following legal forms of organization is ownership readily
transferable?
A. Sole proprietorship
B. Partnership
C. Corporation
D. General partnership
Correct Answer: C. Corporation. Rationale: Ownership in a corporation is easily
transferred through the sale of stock .
7. Which of the following legal forms of organization has the ease of dissolution?
A. Corporation
B. Limited partnership
C. Sole proprietorship
D. Public corporation
Correct Answer: C. Sole proprietorship. Rationale: A sole proprietorship is the
easiest to dissolve because it is owned by a single individual and has no complex
legal structure .
