FINC 3610 Exam Questions and Answers Fully Solved Latest Update 2025-2026
Corporate Finance - Answers a branch of finance that deals with the capital structure and
financial decisions of corporations. encompasses the management of financial resources,
investment decisions, capital budgeting, aiming to maximize shareholder wealth while
managing risks effectively.
three functions of corporate finance - Answers capital budgeting, capital structure, financial
management and policies
Capital Budgeting - Answers the process of planning and managing a firm's long-term
investments. aims to allocate capital in a way that maximizes the value of the firm
Capital Structure - Answers the mix of equity and debt financing a firm uses to fund its
operations and investments. examines the optimal capital structure that balances risk and
return to maximize shareholder value.
financial management and policies - Answers inlcudes managing the company's financial
resources, liquidity management, dividend policies, and working capital management. ensures
efficent use of funds and support the overall financial health of the firm
goal of the firm - Answers maximize shareholder wealth
Sole Proprietorship - Answers A business owned by one person. easy to start and manage.
unlimited personal liability.
General Partnership - Answers A partnership in which all owners share in operating the business
and in assuming liability for the business's debts.
limited partnership - Answers A partnership with one or more general partners (specialized
mngt) have unlimited liability and one or more limited partners.
Corporation - Answers A business owned by stockholders who share in its profits but are not
personally responsible for its debts
Agency Costs - Answers the costs of the conflict of interest between stockholders and
management
to mitigate agency costs, firms can implement: - Answers corporate goverance, incentivwe
alignment, monitoring and transparency
corporate goverance - Answers the system of governing a company so that the interests of
corporate owners and other stakeholders are protected. examples: independent board of
directors, audit committees
incentive alignment - Answers designing compensation packages that align managerial
incentives with shareholder wealth maximization
, example: performance-based bonus
monitoring and transparency - Answers enhancing transparency in financial reporting and
operations, and ensuring regular monitoring of management actions by boards and
shareholders
Balance Sheet - Answers A financial statement that provides company's financial position of
assets, liabilities, and stockholder's equity on a specific date.
book values - Answers Value of assets or liabilities according to the balance sheet (historical
cost--accumulated depreciation) under GAAP
Market Value - Answers values of assests and liabilities based on current market prices/fair
market value (more relevant)
Income Statement - Answers A financial statement that reports a company's revenues and
expenses and resulting net income or net loss for a specific period of time.
income statement formula - Answers total revenue-total expenses
accounting numbers - Answers financial figures reported in company's financial statement
based on accrual accounting principles. includes revenue, expenses, assests, liabilities, equity
cash flows - Answers actual inflows and outflows of cash during a specific period. provides
more direct measurement of a company's liquidity and ability to meet its short-term obligations
Statement of Cash Flows - Answers A financial statement that provides financial information
about the cash receipts and cash payments of a business for a specific period of time. three
main activities: operating, investing, financing.
Operating Activities - Answers Cash flow activities that include the cash effects of transactions
that create revenues and expenses and thus enter into the determination of net income. Ex:
cash received from customers/paid to suppliers
Investing Activities - Answers Activities that increase or decrease the long-term assets available
to the business.
Financing Activities - Answers Cash flow activities that include (a) obtaining cash from issuing
debt and repaying the amounts borrowed and (b) obtaining cash from stockholders,
repurchasing shares, and paying dividends. (obtaining capital) Ex: issuing stock, borrowing debt
Average Tax Rate (ATR) - Answers total taxes paid/total income
Marginal Tax Rate (MTR) - Answers The additional tax liability a person faces divided by his or
her additional taxable income. It is the percentage of an extra dollar of income earned that must
be paid in taxes. It is the marginal tax rate that is relevant in personal decision-making.
Corporate Finance - Answers a branch of finance that deals with the capital structure and
financial decisions of corporations. encompasses the management of financial resources,
investment decisions, capital budgeting, aiming to maximize shareholder wealth while
managing risks effectively.
three functions of corporate finance - Answers capital budgeting, capital structure, financial
management and policies
Capital Budgeting - Answers the process of planning and managing a firm's long-term
investments. aims to allocate capital in a way that maximizes the value of the firm
Capital Structure - Answers the mix of equity and debt financing a firm uses to fund its
operations and investments. examines the optimal capital structure that balances risk and
return to maximize shareholder value.
financial management and policies - Answers inlcudes managing the company's financial
resources, liquidity management, dividend policies, and working capital management. ensures
efficent use of funds and support the overall financial health of the firm
goal of the firm - Answers maximize shareholder wealth
Sole Proprietorship - Answers A business owned by one person. easy to start and manage.
unlimited personal liability.
General Partnership - Answers A partnership in which all owners share in operating the business
and in assuming liability for the business's debts.
limited partnership - Answers A partnership with one or more general partners (specialized
mngt) have unlimited liability and one or more limited partners.
Corporation - Answers A business owned by stockholders who share in its profits but are not
personally responsible for its debts
Agency Costs - Answers the costs of the conflict of interest between stockholders and
management
to mitigate agency costs, firms can implement: - Answers corporate goverance, incentivwe
alignment, monitoring and transparency
corporate goverance - Answers the system of governing a company so that the interests of
corporate owners and other stakeholders are protected. examples: independent board of
directors, audit committees
incentive alignment - Answers designing compensation packages that align managerial
incentives with shareholder wealth maximization
, example: performance-based bonus
monitoring and transparency - Answers enhancing transparency in financial reporting and
operations, and ensuring regular monitoring of management actions by boards and
shareholders
Balance Sheet - Answers A financial statement that provides company's financial position of
assets, liabilities, and stockholder's equity on a specific date.
book values - Answers Value of assets or liabilities according to the balance sheet (historical
cost--accumulated depreciation) under GAAP
Market Value - Answers values of assests and liabilities based on current market prices/fair
market value (more relevant)
Income Statement - Answers A financial statement that reports a company's revenues and
expenses and resulting net income or net loss for a specific period of time.
income statement formula - Answers total revenue-total expenses
accounting numbers - Answers financial figures reported in company's financial statement
based on accrual accounting principles. includes revenue, expenses, assests, liabilities, equity
cash flows - Answers actual inflows and outflows of cash during a specific period. provides
more direct measurement of a company's liquidity and ability to meet its short-term obligations
Statement of Cash Flows - Answers A financial statement that provides financial information
about the cash receipts and cash payments of a business for a specific period of time. three
main activities: operating, investing, financing.
Operating Activities - Answers Cash flow activities that include the cash effects of transactions
that create revenues and expenses and thus enter into the determination of net income. Ex:
cash received from customers/paid to suppliers
Investing Activities - Answers Activities that increase or decrease the long-term assets available
to the business.
Financing Activities - Answers Cash flow activities that include (a) obtaining cash from issuing
debt and repaying the amounts borrowed and (b) obtaining cash from stockholders,
repurchasing shares, and paying dividends. (obtaining capital) Ex: issuing stock, borrowing debt
Average Tax Rate (ATR) - Answers total taxes paid/total income
Marginal Tax Rate (MTR) - Answers The additional tax liability a person faces divided by his or
her additional taxable income. It is the percentage of an extra dollar of income earned that must
be paid in taxes. It is the marginal tax rate that is relevant in personal decision-making.
