Financial Management Theory & Practice
Questions with Answers (100% Correct
Answers)
Objective of the Firm Answer: Maximize Wealth
Finance Skills for Managers Answer: Identify and select the corporate strategies
and individual projects that add value to their firm.
Forecast the funding requirements of their company, and devise strategies for
acquiring those funds.
Types of Businesses Answer: Sole proprietorship
Partnership
Corporation
Advantages of a Proprietorship Answer: Ease of formation
Subject to few regulations
No corporate income taxes
Disadvantages of a Proprietorship Answer: Limited life
Unlimited liability
Difficult to raise capital to support growth
Partnership Answer: A partnership has roughly the same advantages and
disadvantages as a sole proprietorship
Corporation Answer: A corporation is a legal entity separate from its owners
and managers.
, 2
File papers of incorporation with state.
Charter
Bylaws
Advantages of a Corporation Answer: Unlimited life
Easy transfer of ownership
Limited liability
Ease of raising capital
Disadvantages of a Corporation Answer: Double taxation
Cost of set-up and report filing
Public Corporation Answer: Initial Public Offering (IPO) of Stock
Subsequent issues of debt and equity
Initial Public Offering (IPO) Answer: Raises cash
Allows founders and pre-IPO investors to "harvest" some of their wealth
Agency Problem Answer: Managers may act in their own interests and not on
behalf of owners (stockholders)
Corporate Governance Answer: The set of rules that control a company's
behavior towards its directors, managers, employees, shareholders, creditors,
customers, competitors, and community.
Questions with Answers (100% Correct
Answers)
Objective of the Firm Answer: Maximize Wealth
Finance Skills for Managers Answer: Identify and select the corporate strategies
and individual projects that add value to their firm.
Forecast the funding requirements of their company, and devise strategies for
acquiring those funds.
Types of Businesses Answer: Sole proprietorship
Partnership
Corporation
Advantages of a Proprietorship Answer: Ease of formation
Subject to few regulations
No corporate income taxes
Disadvantages of a Proprietorship Answer: Limited life
Unlimited liability
Difficult to raise capital to support growth
Partnership Answer: A partnership has roughly the same advantages and
disadvantages as a sole proprietorship
Corporation Answer: A corporation is a legal entity separate from its owners
and managers.
, 2
File papers of incorporation with state.
Charter
Bylaws
Advantages of a Corporation Answer: Unlimited life
Easy transfer of ownership
Limited liability
Ease of raising capital
Disadvantages of a Corporation Answer: Double taxation
Cost of set-up and report filing
Public Corporation Answer: Initial Public Offering (IPO) of Stock
Subsequent issues of debt and equity
Initial Public Offering (IPO) Answer: Raises cash
Allows founders and pre-IPO investors to "harvest" some of their wealth
Agency Problem Answer: Managers may act in their own interests and not on
behalf of owners (stockholders)
Corporate Governance Answer: The set of rules that control a company's
behavior towards its directors, managers, employees, shareholders, creditors,
customers, competitors, and community.
