FOUNDATIONS OF FINANCIAL MANAGEMENT
REVIEW STUDY SHEET WITH VERIFIED
ANSWERS
◉ In the past the study of finance has included:
Answer: mergers and acquisitions and raising capital and
bankruptcy.
◉ Professor Merton Miller received the Nobel prize in economics for
his work on:
Answer: capital structure theory
◉ Professors Harry Markowitz and William Sharpe received their
Nobel prize in economics for their contributions to the:
Answer: theories of risk-return and portfolio theory.
◉ Proper risk-return management means that:
Answer: The firm must determine an appropriate trade-off between
risk and return.
◉ One of the major disadvantages of a sole proprietorship is:
Answer: that there is unlimited liability to the owner.
, ◉ One of the major advantages of a sole proprietorship is:
Answer: low operating costs.
◉ The partnership form of an organization:
Answer: avoids the double taxation of earnings and dividends found
in the corporate form of organization.
◉ Characteristics of a corporation:
Answer: owned by stockholders who enjoy the privilege of limited
liability. easily divisible between owners. a separate legal entity with
perpetual life.
◉ A Subchapter S corporation:
Answer: has all the organizational benefits of a corporation and its
income is only taxed once.
◉ Corporate governance
Answer: the relationship and exercise of oversight by the board of
directors of the company.
◉ Agency theory examines the relationship between
Answer: owners of the firm and the managers of the firm.
REVIEW STUDY SHEET WITH VERIFIED
ANSWERS
◉ In the past the study of finance has included:
Answer: mergers and acquisitions and raising capital and
bankruptcy.
◉ Professor Merton Miller received the Nobel prize in economics for
his work on:
Answer: capital structure theory
◉ Professors Harry Markowitz and William Sharpe received their
Nobel prize in economics for their contributions to the:
Answer: theories of risk-return and portfolio theory.
◉ Proper risk-return management means that:
Answer: The firm must determine an appropriate trade-off between
risk and return.
◉ One of the major disadvantages of a sole proprietorship is:
Answer: that there is unlimited liability to the owner.
, ◉ One of the major advantages of a sole proprietorship is:
Answer: low operating costs.
◉ The partnership form of an organization:
Answer: avoids the double taxation of earnings and dividends found
in the corporate form of organization.
◉ Characteristics of a corporation:
Answer: owned by stockholders who enjoy the privilege of limited
liability. easily divisible between owners. a separate legal entity with
perpetual life.
◉ A Subchapter S corporation:
Answer: has all the organizational benefits of a corporation and its
income is only taxed once.
◉ Corporate governance
Answer: the relationship and exercise of oversight by the board of
directors of the company.
◉ Agency theory examines the relationship between
Answer: owners of the firm and the managers of the firm.
