Corporate Finance Chapters 1 & 2
Capital Budgeting - ANS The process of planning and managing a firms long term
investments.
Capital Structure - ANS The mixture of debt and equity maintained by a firm.
Working Capital - ANS A firms short term assets and liabilities.
Sole Proprietorship - ANS A business owned by a single individual.
Partnership - ANS A business formed by two or more individuals.
Corporation - ANS A business created as a distinct legal entity owned by one or more
individuals or entities.
The goal of financial management is to - ANS maximize the current value per share of
the existing stock or to maximize the market value of the existing owners equity.
Agency Problem - ANS The possibility of conflict of interest between the owners and
management of a firm.
Stakeholder - ANS Someone other than a stockholder or creditor who potentially has a
claim on the cash flows of the firm.
What are the thee types of financial management decisions? - ANS 1. Capital
budgeting.
2. Capital structure.
3. Working capital.
What are four primary disadvantages to the sole proprietorship and partnership forms of
business? - ANS 1. Owner has unlimited liability for business debts.
2. Life span is limited to owners life span.
3. Amount of equity that can be raised is limited to the proprietors personal wealth.
4. Ownership is difficult to transfer.
, What are four advantages to the sole proprietorship and partnership forms of business?
- ANS 1. Simplest type of business to start.
2. Least regulated.
3. Owner keeps all profits.
4. No double taxation.
What goal should always motivate the actions of the firms financial manager? - ANS
The goal of financial management is to maximize the current value per share of the
existing stock.
Balance Sheet - ANS Financial statement showing a firms accounting value on a
particular date.
Assets are classified as either - ANS current or fixed.
A current asset has a life of - ANS less than one year.
Liabilities are classified as either - ANS current or long term.
Net working capital - ANS Current assets less current liabilities. It is the difference
between a firms current assets and its current liabilities.
Liquidity refers to - ANS the speed and ease with which an asset can be converted to
cash. Liquidity has two dimensions: ease of conversion and loss of value.
A highly liquid asset is - ANS one that can be quickly sold without significant loss of
value.
An illiquid asset is one that - ANS cannot be quickly converted to cash without a
substantial price reduction.
Fixed assets are, for the most part, - ANS relatively illiquid.
Intangible assets are - ANS things such as trademarks.
Shareholders equity equals - ANS assets minus liabilities.
The true value of any asset is its market value, which is - ANS simply the amount of
cash we would get if we actually sold it.
Capital Budgeting - ANS The process of planning and managing a firms long term
investments.
Capital Structure - ANS The mixture of debt and equity maintained by a firm.
Working Capital - ANS A firms short term assets and liabilities.
Sole Proprietorship - ANS A business owned by a single individual.
Partnership - ANS A business formed by two or more individuals.
Corporation - ANS A business created as a distinct legal entity owned by one or more
individuals or entities.
The goal of financial management is to - ANS maximize the current value per share of
the existing stock or to maximize the market value of the existing owners equity.
Agency Problem - ANS The possibility of conflict of interest between the owners and
management of a firm.
Stakeholder - ANS Someone other than a stockholder or creditor who potentially has a
claim on the cash flows of the firm.
What are the thee types of financial management decisions? - ANS 1. Capital
budgeting.
2. Capital structure.
3. Working capital.
What are four primary disadvantages to the sole proprietorship and partnership forms of
business? - ANS 1. Owner has unlimited liability for business debts.
2. Life span is limited to owners life span.
3. Amount of equity that can be raised is limited to the proprietors personal wealth.
4. Ownership is difficult to transfer.
, What are four advantages to the sole proprietorship and partnership forms of business?
- ANS 1. Simplest type of business to start.
2. Least regulated.
3. Owner keeps all profits.
4. No double taxation.
What goal should always motivate the actions of the firms financial manager? - ANS
The goal of financial management is to maximize the current value per share of the
existing stock.
Balance Sheet - ANS Financial statement showing a firms accounting value on a
particular date.
Assets are classified as either - ANS current or fixed.
A current asset has a life of - ANS less than one year.
Liabilities are classified as either - ANS current or long term.
Net working capital - ANS Current assets less current liabilities. It is the difference
between a firms current assets and its current liabilities.
Liquidity refers to - ANS the speed and ease with which an asset can be converted to
cash. Liquidity has two dimensions: ease of conversion and loss of value.
A highly liquid asset is - ANS one that can be quickly sold without significant loss of
value.
An illiquid asset is one that - ANS cannot be quickly converted to cash without a
substantial price reduction.
Fixed assets are, for the most part, - ANS relatively illiquid.
Intangible assets are - ANS things such as trademarks.
Shareholders equity equals - ANS assets minus liabilities.
The true value of any asset is its market value, which is - ANS simply the amount of
cash we would get if we actually sold it.
