BFIN 300 Midterm Questions with Complete Solutions

BFIN 300 Midterm Questions with Complete Solutions what questions do corporate finance seek to answer - Answer-what long term investments are needed, where to get long term financing, how to manage daily activities, how will financial decisions impact the company and its shares job of managers - Answer-represent shareholders and make collective decisions to maximize profits and share price what is capital budgeting - Answer-identifying investment opportunities that are worth more to the business than they cost to acquire what are some capital structure decisions - Answer-financing- long term vs short term debt vs equity, how much borrowing and how to raise money working capital management - Answer-managing short term assets and short term liabilities (think of your checking account) short term assets examples - Answer-cash, accounts receivable, SOME inventory (not all, do not get tricked on the test) short term liabilities - Answer-short term notes that are owed what are the 3 main types of businesses - Answer-sole proprietorship, partnership, corporation sole proprietorship - Answer-1 owner, owner keeps all profits, unlimited liability (on the hook for any debt incurred !!) partnership - Answer-2 + owners, functions as sole proprietorship, can be general or limited general partner - Answer-partners share gains and losses, unlimited liability limited partner - Answer-must have one or more general partners, limited partner does not participate in the business and therefore is not responsible for the business's liabilities corporation - Answer-considered its own legal entity, limited liability for shareholders, ownership can be easily transferred through shares, must pay taxes who selects management team in a corporation? - Answer-board of directors who selects board of directors in a corporation? - Answer-shareholders double taxation - Answer-corporations must pay taxes on their earnings, money leftover is paid as dividends to shareholders, shareholders must pay taxes on their dividends what is the goal of financial management - Answer-profit maximization, maximize shareholder value, evaluate financial decisions to positively impact shares corporate finance (super important!!!!) - Answer-relationship between business decisions and maximizing the value of the business sarbanes oxley act - Answer-requires financial statements to be listed in order to provide info to the business's future prospects agency relationship - Answer-relationship between management of a company and its shareholders potential conflicts of interest in a corporation - Answer-compensation, excessive expenses, dividends, management not performing as shareholders want them to proxy fight - Answer-give someone else the authority to vote for your shares to remove a management team or board of directors why is a proxy fight necessary - Answer-shareholders do not have enough ownership of a company to fire anyone on their own who are stakeholders - Answer-someone who has a claim on company cash flows. ex: creditors, investors, customers, suppliers, GOVERNMENT primary market - Answer-initial sale of a security (initial public offering) secondary market - Answer-second sale where securities are bought and sold after the original sale of an IPO 2 types of secondary markets - Answer-auction and dealer auction market - Answer-exchange, matches buyers and sellers dealer market - Answer-buy and sell from own portfolio account, take on firm risk brokers - Answer-act as agents matching buyers and sellers what does a financial statement say on its own - Answer-practically nothing because it is just a snapshot of a company at a given point in time balance sheet equation - Answer-assets = liabilities + SEQ shareholders equity - Answer-difference between assets and liabilities, residual value of a company net working capital - Answer-short term assets - short term liabilities liquidity - Answer-speed at which assets can be converted into cash (ease of conversion + loss in value taken into account) financial leverage - Answer-the use of debt in a company's capital structure to magnify earnings and losses