CORPORATE FINANCE EXAM(CH. 1 - 5) FULLY SOLVED #2
Finance - correct answer The study of investing
Investing - correct answer Committing resources today in hopes of earning a profit in
the future
Goal of the firm - correct answer Maximize stockholder wealth or maximize the stock
price
Three elements of financial decision making - correct answer 1. Money
2. Time
3. Risk (Uncertainty)
Risk - correct answer The chance that some unfavorable event will occur
Risk/Expected Return relationship - correct answer In a financial market context, the
chance that an investment will provide a low or negative return
Proprietorship - correct answer An unincorporated business owned by one individual
Partnership - correct answer An unincorporated business owned by two or more
persons
Corporation - correct answer A legal entity created by a state, separate and distinct from
its owners and managers, having unlimited life, easy transferability of ownership, and
limited liability
Intrinsic value - correct answer An estimate of a stock's "true" value based on accurate
risk and return data. The intrinsic value can be estimated, but not measured precisely
Over/Under valued - correct answer Over Valued - selling above the intrinsic value
Under Valued - selling below the intrinsic value
Financial markets (two types): - correct answer 1. Deficit Spenders
2. Surplus Spenders
Deficit Spenders - correct answer Spend more than they tend to have
Surplus Spenders - correct answer Have more then they tend to spend
Commercial bank - correct answer The traditional department store of finance serving a
variety of savers and borrowers; is a financial institution that provides various financial
service, such as accepting deposits and issuing loans
Finance - correct answer The study of investing
Investing - correct answer Committing resources today in hopes of earning a profit in
the future
Goal of the firm - correct answer Maximize stockholder wealth or maximize the stock
price
Three elements of financial decision making - correct answer 1. Money
2. Time
3. Risk (Uncertainty)
Risk - correct answer The chance that some unfavorable event will occur
Risk/Expected Return relationship - correct answer In a financial market context, the
chance that an investment will provide a low or negative return
Proprietorship - correct answer An unincorporated business owned by one individual
Partnership - correct answer An unincorporated business owned by two or more
persons
Corporation - correct answer A legal entity created by a state, separate and distinct from
its owners and managers, having unlimited life, easy transferability of ownership, and
limited liability
Intrinsic value - correct answer An estimate of a stock's "true" value based on accurate
risk and return data. The intrinsic value can be estimated, but not measured precisely
Over/Under valued - correct answer Over Valued - selling above the intrinsic value
Under Valued - selling below the intrinsic value
Financial markets (two types): - correct answer 1. Deficit Spenders
2. Surplus Spenders
Deficit Spenders - correct answer Spend more than they tend to have
Surplus Spenders - correct answer Have more then they tend to spend
Commercial bank - correct answer The traditional department store of finance serving a
variety of savers and borrowers; is a financial institution that provides various financial
service, such as accepting deposits and issuing loans
