Corporate Finance Summary Questions and
Answers Grade A+ 2023
1.1 How do you understand the following statement: "Corporate Finance is focused". - -Goals of
the Corporation: Shareholders desired wealth maximization.
-1.2 Who are the principal financial managers in a corporation? Write down their main
responsibilities. - -Chief Financial Officer (CFO): Supervises all financial functions and sets
overall financial strategy.
Treasurer: Responsible for financing, cash management, and relationships with banks and other
financial institutions
Controller: Responsible for preparation of financial statements, accounting, and taxes
-1.3 Explain the differences between investment and financing decisions. Provide examples. - -
Investment Decision (Capital Budgeting Decision):
Decision to invest in tangible or intangible assets. ex. (Intel decides to spend $7 billion to
develop a new microprocessor; Royal Dutch Shell constructs a pipeline to bring natural gas
onshore from a production platform in Australia; Avon spends €200 million to launch a new
range of cosmetics in European markets.) KEY: spending
Financing Decision:
Decision on the sources and amounts of financing.
ex. (BMW borrows 350 million euros (€350million) from Deutsche Bank) KEY: buying
-1.4 Explain briefly the difference between real and financial assets. Provide examples. - -Real
Assets:
*Assets used to produce goods and services
*Tangible (plant, office buildings, machinery, vehicles) and intangible (patents, brand names)
Financial Assets:
*Financial claims to the income generated by the firm'sreal assets (bank loan, share of stock)
*Securities: purchased and traded by investors in public marketsCompanies usually buy real
assets.
These include both tangible assets such as executive airplanes and intangible assets such as
brandnames. To pay for these assets, they sell financial assets such asbonds. The decision about
which assets to buy is usually termed thecapital budgeting or investment decision. The decision
about how to raise the money is usually termed the financing decision.
-1.5 What is opportunity cost of capital? - -The minimum acceptable rate of return on capital
investment is set by the investment opportunities available to shareholders in financial markets.
Answers Grade A+ 2023
1.1 How do you understand the following statement: "Corporate Finance is focused". - -Goals of
the Corporation: Shareholders desired wealth maximization.
-1.2 Who are the principal financial managers in a corporation? Write down their main
responsibilities. - -Chief Financial Officer (CFO): Supervises all financial functions and sets
overall financial strategy.
Treasurer: Responsible for financing, cash management, and relationships with banks and other
financial institutions
Controller: Responsible for preparation of financial statements, accounting, and taxes
-1.3 Explain the differences between investment and financing decisions. Provide examples. - -
Investment Decision (Capital Budgeting Decision):
Decision to invest in tangible or intangible assets. ex. (Intel decides to spend $7 billion to
develop a new microprocessor; Royal Dutch Shell constructs a pipeline to bring natural gas
onshore from a production platform in Australia; Avon spends €200 million to launch a new
range of cosmetics in European markets.) KEY: spending
Financing Decision:
Decision on the sources and amounts of financing.
ex. (BMW borrows 350 million euros (€350million) from Deutsche Bank) KEY: buying
-1.4 Explain briefly the difference between real and financial assets. Provide examples. - -Real
Assets:
*Assets used to produce goods and services
*Tangible (plant, office buildings, machinery, vehicles) and intangible (patents, brand names)
Financial Assets:
*Financial claims to the income generated by the firm'sreal assets (bank loan, share of stock)
*Securities: purchased and traded by investors in public marketsCompanies usually buy real
assets.
These include both tangible assets such as executive airplanes and intangible assets such as
brandnames. To pay for these assets, they sell financial assets such asbonds. The decision about
which assets to buy is usually termed thecapital budgeting or investment decision. The decision
about how to raise the money is usually termed the financing decision.
-1.5 What is opportunity cost of capital? - -The minimum acceptable rate of return on capital
investment is set by the investment opportunities available to shareholders in financial markets.
