FIN 306 TEST 1 Questions with Correct Solutions
Question:
1. Capital Budgeting
Answer:
The process of planning and managing a firm's long-term investments.
Question:
2. Capital Structure
Answer:
The mixture of debt and equity maintained by a firm
Question:
3. Working Capital
Answer:
A firm's short-term assets and liabilites
Question:
4. Sole Proprietorship
Answer:
A business owned by a single individual
Question:
5. Parternship
Answer:
A business formed by two or more individuals or entities
Question:
6. Corporation
Answer:
A business created as a distinct legal entity owned by one or more individuals or entities
Question:
7. The goal of financial management is to
Answer:
maximize the current value per share of the existing stock
, Question:
8. Agency Problem
Answer:
The possibility of conflict of interest between the owners and management of a firm
Question:
9. Agency Relationship
Answer:
The relationship between stockholders and management
Question:
10. Managerial Compensation
Answer:
Management will frequently have a significant economic incentive to increase share value
1. usually tied to financial performance
2. relates to job prospects --> better performers get promoted
Question:
11. Stakeholder
Answer:
Someone other than a stockholder or creditor who potentially has a claim on the cash flows of
the firm
Question:
12. Primary Market
Answer:
In a primary market the corporation is the seller and the transaction raises money for the
corporation
1. public offerings--> involves selling securities to the general public
2. Private placement --> a negotiated sale involving a specific buyer.
Question:
13. Secondary Market
Answer:
Involves one owner or creditor selling to another
Question:
14. Dealer vs. auction markets
Question:
1. Capital Budgeting
Answer:
The process of planning and managing a firm's long-term investments.
Question:
2. Capital Structure
Answer:
The mixture of debt and equity maintained by a firm
Question:
3. Working Capital
Answer:
A firm's short-term assets and liabilites
Question:
4. Sole Proprietorship
Answer:
A business owned by a single individual
Question:
5. Parternship
Answer:
A business formed by two or more individuals or entities
Question:
6. Corporation
Answer:
A business created as a distinct legal entity owned by one or more individuals or entities
Question:
7. The goal of financial management is to
Answer:
maximize the current value per share of the existing stock
, Question:
8. Agency Problem
Answer:
The possibility of conflict of interest between the owners and management of a firm
Question:
9. Agency Relationship
Answer:
The relationship between stockholders and management
Question:
10. Managerial Compensation
Answer:
Management will frequently have a significant economic incentive to increase share value
1. usually tied to financial performance
2. relates to job prospects --> better performers get promoted
Question:
11. Stakeholder
Answer:
Someone other than a stockholder or creditor who potentially has a claim on the cash flows of
the firm
Question:
12. Primary Market
Answer:
In a primary market the corporation is the seller and the transaction raises money for the
corporation
1. public offerings--> involves selling securities to the general public
2. Private placement --> a negotiated sale involving a specific buyer.
Question:
13. Secondary Market
Answer:
Involves one owner or creditor selling to another
Question:
14. Dealer vs. auction markets
