FINC 3610 LATEST 2026 TEST PAPER QUESTIONS AND
ANSWERS MARKED A+
✔✔partnership advantages - ✔✔Two or more owners
More capital available
Relatively easy to start
Income taxed once as personal income
✔✔partnership disadvantages - ✔✔Unlimited liability
•General partnership•Limited partnership
Partnership dissolves when one partner dies or wishes to sell
Difficult to transfer ownership
✔✔corporation advantages - ✔✔Limited liability
Unlimited life
Separation of ownership and management
Transfer of ownership is easy
Easier to raise capital
✔✔corporation disadvantages - ✔✔Double taxation (income taxed at the corporate rate
and then dividends taxed at the personal rate)
✔✔agency relationship - ✔✔-Principal hires an agent to represent his/her interests
-Stockholders (principals) hire managers (agents) to run the company
✔✔agency problem - ✔✔Conflict of interest between principal and agent
✔✔managerial compensation - ✔✔-Incentives can be used to align management and
stockholder interests
-The incentives need to be structured carefully to make sure that they achieve their goal
✔✔Dealer markets - ✔✔NASDAQ, consist of dealers operating at dispersed locales
who buy and sell assets themselves, communicating with other dealers either
electronically or literally over-the-counter NASDAQ consist of dealers operating at
dispersed locales who buy and sell assets themselves, communicating with other
dealers either electronically or literally over-the-counter.10.
✔✔primary market - ✔✔-provide cash flow to the firm
-company directly involved
✔✔secondary market - ✔✔-provide cash flow to the firm
-Dealer - "over the counter securities" transactions are handled through dealer
✔✔Assets are listed in order of - ✔✔decreasing liquidity
, ✔✔total value of liabilities and SE - ✔✔1. current liab
2. LT debt
3. SE
✔✔total value of assets - ✔✔Current assets: Fixed assets, tangible & intangible
✔✔Net working capital = - ✔✔Current Assets - Current Liabilities
✔✔liquid assets typically earn a - ✔✔lower return
✔✔liquidity - ✔✔Ability to convert to cash quickly without a significant loss in value
✔✔market value - ✔✔the price at which the assets, liabilities, or equity can actually be
bought or sold.
✔✔book value - ✔✔The balance sheet provides this of the assets, liabilities, and equity.
✔✔Income statement - ✔✔more like a video of the firm's operations for a specified
period of time.
✔✔matching principle - ✔✔GAAP says to show revenue when it accrues and match the
expenses required to generate the revenue
✔✔SEC - ✔✔Publicly traded companies must file regular reports with them
✔✔marginal tax rate - ✔✔the percentage paid on the next dollar earned
✔✔average tax rate - ✔✔the tax bill / taxable income
-vary widely across different companies and industries
✔✔Cash Flow From Assets (The cash flow identity) - ✔✔Cash Flow to Creditors + Cash
Flow to Stockholders
✔✔operating cash flow = - ✔✔EBIT -Taxes + Depreciation
✔✔Net capital spending= - ✔✔Ending FA - Beg. FA + Deprec.
✔✔change in NWC= - ✔✔Ending WC - Beg. WC
✔✔balance sheet CF components - ✔✔Changes in NWC
Net capital spending
CFC
CFS
ANSWERS MARKED A+
✔✔partnership advantages - ✔✔Two or more owners
More capital available
Relatively easy to start
Income taxed once as personal income
✔✔partnership disadvantages - ✔✔Unlimited liability
•General partnership•Limited partnership
Partnership dissolves when one partner dies or wishes to sell
Difficult to transfer ownership
✔✔corporation advantages - ✔✔Limited liability
Unlimited life
Separation of ownership and management
Transfer of ownership is easy
Easier to raise capital
✔✔corporation disadvantages - ✔✔Double taxation (income taxed at the corporate rate
and then dividends taxed at the personal rate)
✔✔agency relationship - ✔✔-Principal hires an agent to represent his/her interests
-Stockholders (principals) hire managers (agents) to run the company
✔✔agency problem - ✔✔Conflict of interest between principal and agent
✔✔managerial compensation - ✔✔-Incentives can be used to align management and
stockholder interests
-The incentives need to be structured carefully to make sure that they achieve their goal
✔✔Dealer markets - ✔✔NASDAQ, consist of dealers operating at dispersed locales
who buy and sell assets themselves, communicating with other dealers either
electronically or literally over-the-counter NASDAQ consist of dealers operating at
dispersed locales who buy and sell assets themselves, communicating with other
dealers either electronically or literally over-the-counter.10.
✔✔primary market - ✔✔-provide cash flow to the firm
-company directly involved
✔✔secondary market - ✔✔-provide cash flow to the firm
-Dealer - "over the counter securities" transactions are handled through dealer
✔✔Assets are listed in order of - ✔✔decreasing liquidity
, ✔✔total value of liabilities and SE - ✔✔1. current liab
2. LT debt
3. SE
✔✔total value of assets - ✔✔Current assets: Fixed assets, tangible & intangible
✔✔Net working capital = - ✔✔Current Assets - Current Liabilities
✔✔liquid assets typically earn a - ✔✔lower return
✔✔liquidity - ✔✔Ability to convert to cash quickly without a significant loss in value
✔✔market value - ✔✔the price at which the assets, liabilities, or equity can actually be
bought or sold.
✔✔book value - ✔✔The balance sheet provides this of the assets, liabilities, and equity.
✔✔Income statement - ✔✔more like a video of the firm's operations for a specified
period of time.
✔✔matching principle - ✔✔GAAP says to show revenue when it accrues and match the
expenses required to generate the revenue
✔✔SEC - ✔✔Publicly traded companies must file regular reports with them
✔✔marginal tax rate - ✔✔the percentage paid on the next dollar earned
✔✔average tax rate - ✔✔the tax bill / taxable income
-vary widely across different companies and industries
✔✔Cash Flow From Assets (The cash flow identity) - ✔✔Cash Flow to Creditors + Cash
Flow to Stockholders
✔✔operating cash flow = - ✔✔EBIT -Taxes + Depreciation
✔✔Net capital spending= - ✔✔Ending FA - Beg. FA + Deprec.
✔✔change in NWC= - ✔✔Ending WC - Beg. WC
✔✔balance sheet CF components - ✔✔Changes in NWC
Net capital spending
CFC
CFS
