BSNS114 Exam Questions And Accurate
Answers
What is the objective of financial business making - Answer To maximise value of the
business(firm)/maximise stockholder wealth(or share price)
What helps with with maximising the value of a business or firm - Answer investment,
financing and working capital management decisions
What are the variables to consider when starting a business? - Answer Assets,
liabilities, equity
Assets - Answer What a firm owns
Liabilities - Answer what a firm owns
Equity - Answer Capital received from owners aka investors
The 2 ways in which a business can raise money to fund the startup of a business -
Answer debt and equity
using debt to start a business - Answer firm makes a promise to make fixed payments in
the future =Principal + interest
Debt - Answer Contractual obligation + usually fixed term
using equity to start a business - Answer Keeps the earnings + perpetual (never
ending/changing) (occurring repeatedly)
what do working capital management decisions deal with - Answer day to day financial
matters and affect current assets and current liabilities
current assets include - Answer cash, inventory, accounts
What do investment decisions determine - Answer what long term productive assets the
firm will purchase
What do financing decisions determine - Answer The mix of debt and equity that will be
used to finance that firms long term productive assets
forms of business - Answer sole proprietorship, partnership, corporation
Sole proprietorship - Answer a type of business where one person is responsible for
providing capital and managing the business. There is no separation of ownership and
management
Advantages of Sole Proprietorship - Answer simple to establish, owner controlled, tax
advantages, least expensive and least regulated form of business, easy to wind up, no
, sharing of profit and loss
Disadvantages of Sole Proprietorship - Answer limited access to capital, costly to
transfer ownership, unlimited liability
Partnership - Answer A business in which 2 or more owners have joined together legally
to manage a business and share its profits
Types of partnership - Answer general partnership and limited partnership
General partnership - Answer All partners are owners and active in managing business
Limited partnership - Answer has both general partners who are owners and managers
and limited partners who are owners but not managers
Advantages of partnership - Answer Two or more owners, more capital available,
relatively easy to start, tax advantages
Disadvantages of partnership - Answer Unlimited liability(general partnership),
partnership dissolves when one partner dies or wishes to sell, difficult to transfer
ownership
In corporation - Answer Legal process used to form a corporate entity(company)
Advantages of corporation - Answer separate from its owners legal entity, easy to
transfer ownership, limited liability (protects the personal assets of founders of the
company in case of bankruptcy)
Disadvantages of a corporation - Answer Separation of ownership and management
may create conflicts of interest, all profits are taxed at a corporate tax rate, costly to
establish and register
Corporation competing interest and possible problems in theory - Answer stockholders
hire managers to run their business for them, managers set aside their interest and
maximise stock, therefore shareholders wealth is maximised
corporation competing interest and possible problems in practice - Answer Agency
relationship means human assumption and self interest there are 2 paths in the
relationship of principal(shareholder) and agent(manager) the path of maximisation of
the firm(shareholders best interest) and the path of interest of the agent(manager)
salary, compensations, and job security. This means there could be a separation of
interest that could result in conflict, this is called an agency problem
Agency problem - Answer the possibility of conflict of interest between the stockholders
and management of a firm
Agency cost - Answer Cost incurred because of conflicts of interest between a principal
and agent, can cause the firms value to diminish
Managers causing firms value to diminish - Answer Managers can make decisions that
Answers
What is the objective of financial business making - Answer To maximise value of the
business(firm)/maximise stockholder wealth(or share price)
What helps with with maximising the value of a business or firm - Answer investment,
financing and working capital management decisions
What are the variables to consider when starting a business? - Answer Assets,
liabilities, equity
Assets - Answer What a firm owns
Liabilities - Answer what a firm owns
Equity - Answer Capital received from owners aka investors
The 2 ways in which a business can raise money to fund the startup of a business -
Answer debt and equity
using debt to start a business - Answer firm makes a promise to make fixed payments in
the future =Principal + interest
Debt - Answer Contractual obligation + usually fixed term
using equity to start a business - Answer Keeps the earnings + perpetual (never
ending/changing) (occurring repeatedly)
what do working capital management decisions deal with - Answer day to day financial
matters and affect current assets and current liabilities
current assets include - Answer cash, inventory, accounts
What do investment decisions determine - Answer what long term productive assets the
firm will purchase
What do financing decisions determine - Answer The mix of debt and equity that will be
used to finance that firms long term productive assets
forms of business - Answer sole proprietorship, partnership, corporation
Sole proprietorship - Answer a type of business where one person is responsible for
providing capital and managing the business. There is no separation of ownership and
management
Advantages of Sole Proprietorship - Answer simple to establish, owner controlled, tax
advantages, least expensive and least regulated form of business, easy to wind up, no
, sharing of profit and loss
Disadvantages of Sole Proprietorship - Answer limited access to capital, costly to
transfer ownership, unlimited liability
Partnership - Answer A business in which 2 or more owners have joined together legally
to manage a business and share its profits
Types of partnership - Answer general partnership and limited partnership
General partnership - Answer All partners are owners and active in managing business
Limited partnership - Answer has both general partners who are owners and managers
and limited partners who are owners but not managers
Advantages of partnership - Answer Two or more owners, more capital available,
relatively easy to start, tax advantages
Disadvantages of partnership - Answer Unlimited liability(general partnership),
partnership dissolves when one partner dies or wishes to sell, difficult to transfer
ownership
In corporation - Answer Legal process used to form a corporate entity(company)
Advantages of corporation - Answer separate from its owners legal entity, easy to
transfer ownership, limited liability (protects the personal assets of founders of the
company in case of bankruptcy)
Disadvantages of a corporation - Answer Separation of ownership and management
may create conflicts of interest, all profits are taxed at a corporate tax rate, costly to
establish and register
Corporation competing interest and possible problems in theory - Answer stockholders
hire managers to run their business for them, managers set aside their interest and
maximise stock, therefore shareholders wealth is maximised
corporation competing interest and possible problems in practice - Answer Agency
relationship means human assumption and self interest there are 2 paths in the
relationship of principal(shareholder) and agent(manager) the path of maximisation of
the firm(shareholders best interest) and the path of interest of the agent(manager)
salary, compensations, and job security. This means there could be a separation of
interest that could result in conflict, this is called an agency problem
Agency problem - Answer the possibility of conflict of interest between the stockholders
and management of a firm
Agency cost - Answer Cost incurred because of conflicts of interest between a principal
and agent, can cause the firms value to diminish
Managers causing firms value to diminish - Answer Managers can make decisions that
