FINC 3610 UPDATED PRACTICE EXAM QUESTIONS AND
ANSWERS MARKED A+
✔✔The Vice President of finance coordinates the activities of the ________ and the
__________. - ✔✔treasurer and controller
✔✔controller - ✔✔Manages the accounting department
✔✔treasurer - ✔✔handles finance related decisions
✔✔working capital - ✔✔a firm's short-term assets and liabilities
✔✔sole proprietorship - ✔✔a business owned by a single person
PROS
-small business
-simple and easy to start
-cashflow taxed as personal income
CONS
-unlimited liability
-ends w/ death of owner
-ownership transfer is hard
-capital raised is limited to owners wealth
✔✔partnership - ✔✔a business formed by two or more individuals or entities
PROS
-allows for more than 1 owner
-simple and easy
-cashflow taxed as personal income
CONS
-unlimited liability
-ends w/ death of owner
-ownership transfer is hard
-capital raised is limited to owners wealth
✔✔corporation - ✔✔large business as its entity
PROS
-limited liability
-as many owners as wanted
-ownership transfer is easy
-infinite life
CONS
-more expensive to start
-taxed as a separate entity (Corporation reports income, and the income is taxed, and
then the individual is taxed, so its double taxation)
, ✔✔balance sheet - ✔✔provides a snapshot of a firm's financial position at one point in
time
✔✔income statement - ✔✔provides perspective on a firms financial condition over a
period of time
✔✔statement of cash flows - ✔✔indicates the actual cash in and out during a period of
time
✔✔corporate governance - ✔✔rules and regulations that govern a firm and its
managers that serve to protect minority
goal---> address agency conflicts
✔✔primary market - ✔✔when firms receive capital directly from investors
✔✔secondary market - ✔✔when investors trade amongst themselves
✔✔for balance sheet, Total assets =..... - ✔✔total liabilities +total equity
✔✔market value - ✔✔the price today at which you could sell an asset
✔✔income =.... - ✔✔revenue - expenses
✔✔CF from assets = ..... - ✔✔CF to creditors + CF to stockholders
✔✔3 major categories of cash flows - ✔✔operating
investment
financing
✔✔operating cf - ✔✔directly related to sales and cash flow production
✔✔Cash flow from assets = ? (longer one) - ✔✔Operating cash flow - Net capital
spending- Change in net working capital
✔✔Net capital spending = - ✔✔Ending net fixed assets - Beginning net fixed assets +
depreciation
✔✔Change in net working capital = - ✔✔Ending net working capital - Beginning net
working capital
✔✔average tax rate - ✔✔simply the firm's tax bill divided by its taxable income
✔✔marginal tax rate - ✔✔the tax rate on the next $1 earned
ANSWERS MARKED A+
✔✔The Vice President of finance coordinates the activities of the ________ and the
__________. - ✔✔treasurer and controller
✔✔controller - ✔✔Manages the accounting department
✔✔treasurer - ✔✔handles finance related decisions
✔✔working capital - ✔✔a firm's short-term assets and liabilities
✔✔sole proprietorship - ✔✔a business owned by a single person
PROS
-small business
-simple and easy to start
-cashflow taxed as personal income
CONS
-unlimited liability
-ends w/ death of owner
-ownership transfer is hard
-capital raised is limited to owners wealth
✔✔partnership - ✔✔a business formed by two or more individuals or entities
PROS
-allows for more than 1 owner
-simple and easy
-cashflow taxed as personal income
CONS
-unlimited liability
-ends w/ death of owner
-ownership transfer is hard
-capital raised is limited to owners wealth
✔✔corporation - ✔✔large business as its entity
PROS
-limited liability
-as many owners as wanted
-ownership transfer is easy
-infinite life
CONS
-more expensive to start
-taxed as a separate entity (Corporation reports income, and the income is taxed, and
then the individual is taxed, so its double taxation)
, ✔✔balance sheet - ✔✔provides a snapshot of a firm's financial position at one point in
time
✔✔income statement - ✔✔provides perspective on a firms financial condition over a
period of time
✔✔statement of cash flows - ✔✔indicates the actual cash in and out during a period of
time
✔✔corporate governance - ✔✔rules and regulations that govern a firm and its
managers that serve to protect minority
goal---> address agency conflicts
✔✔primary market - ✔✔when firms receive capital directly from investors
✔✔secondary market - ✔✔when investors trade amongst themselves
✔✔for balance sheet, Total assets =..... - ✔✔total liabilities +total equity
✔✔market value - ✔✔the price today at which you could sell an asset
✔✔income =.... - ✔✔revenue - expenses
✔✔CF from assets = ..... - ✔✔CF to creditors + CF to stockholders
✔✔3 major categories of cash flows - ✔✔operating
investment
financing
✔✔operating cf - ✔✔directly related to sales and cash flow production
✔✔Cash flow from assets = ? (longer one) - ✔✔Operating cash flow - Net capital
spending- Change in net working capital
✔✔Net capital spending = - ✔✔Ending net fixed assets - Beginning net fixed assets +
depreciation
✔✔Change in net working capital = - ✔✔Ending net working capital - Beginning net
working capital
✔✔average tax rate - ✔✔simply the firm's tax bill divided by its taxable income
✔✔marginal tax rate - ✔✔the tax rate on the next $1 earned
