MBA 702 Final Exam Questions with
Guaranteed Pass Solutions 2025-2026
Updated.
NPV - Answer Net present value
The balance sheet identity is: - Answer Assets ≡ Liabilities + Stockholder's Equity
What is the goal of financial management? - Answer maximize shareholder wealth
PV - Answer Present value
CF - Answer Cash Flow
What major regulations impact public firms? - Answer 1) The Securities Act of 1933 and the
Securities Exchange Act of 1934
-------Issuance of Securities (1933)
-------Creation of SEC and reporting requirements (1934)
2) Sarbanes-Oxley ("Sarbox")
-------Increased reporting requirements and responsibility of corporate directors
-------Personal consequences for non-compliance
What are agency problems, and why do they exist within a corporation? - Answer Conflict of
interest between principal and agent
What are the 3 major forms of business organization? - Answer 1. Sole Proprietorship
2. Partnership
-General Partnership
- Limited Partnership
3. Corporation
Shareholder - Answer A shareholder or stockholder is an individual or institution (including a
corporation) that legally owns one or more shares of stock in a public or private corporation.
Delisting - Answer Refers to the practice of removing the stock of a company from a stock
exchange so that investors can no longer trade shares of the stock on that exchange
,Payback period rule - Answer investment is acceptable if its calculated payback is less than
some prespecified number of years.
Payback (Drawbacks) - Answer -No discounting involved
-Doesn't consider risk differences
-How do we determine the cutoff point
-Biased toward short-term investments
Payback Period - Answer length of time until the accumulated cash flows equal or exceed the
original investment, i.e., how fast you recover your initial investment
Shareholder Wealth Maximization - Answer The primary goal of the firm. Equivalent to
maximizing the firm's stock price.
IRR - Answer internal rate of return
Internal Rate of Return (IRR) - Answer the rate that makes the present value of the future
cash flows equal to the initial cost or investment. In other words, the discount rate that gives a
project a $0 NPV.
True or False:
The goal of IRR is not to find zero NPV projects, but rather to find a range of discount rates for
which the project is acceptable. - Answer True
True or False:
IRRs are easy to understand and to communicate. - Answer True
True or False:
An advantage with IRRs that they can distinguish between investing and borrowing. - Answer
False.
IRRs cannot distinguish between investing and borrowing making it disadvantage.
, True or False:
A disadvantage for IRRs is there may not be one or there may be multiple IRRs. - Answer
True.
this is a disadvantage.
Short Selling - Answer selling stock borrowed from a broker with the intention of buying it
back later at a lower price, repaying the broker, and keeping the profit
What are 3 things to keep in mind when analyzing an income statement? - Answer 1.
Generally Accepted Accounting Principles (GAAP)
2. Non-cash items
3. Time & Cost
When analyzing a balance sheet, the finance manager should be aware of 3 concerns? - Answer
1. Liquidity
2. Debt v. Equity
3. Value v. Cost
Liquidity - Answer the ease with which an asset can be converted into cash
What is a corporation? - Answer a company or group of people authorized to act as a single
entity (legally a person) and recognized as such in law, with various rights and duties including
the capacity of succession.
What are the 3 basic questions Financial Managers must answer? - Answer 1. What long-
term investments should the firm choose?
2. How should the firm raise funds for the selected investments?
3. How should short-term assets be managed and financed?
PI - Answer The Profitability Index
The Profitability Index - Answer PI= Total PV of future cash flows/initial investments
True or False:
Guaranteed Pass Solutions 2025-2026
Updated.
NPV - Answer Net present value
The balance sheet identity is: - Answer Assets ≡ Liabilities + Stockholder's Equity
What is the goal of financial management? - Answer maximize shareholder wealth
PV - Answer Present value
CF - Answer Cash Flow
What major regulations impact public firms? - Answer 1) The Securities Act of 1933 and the
Securities Exchange Act of 1934
-------Issuance of Securities (1933)
-------Creation of SEC and reporting requirements (1934)
2) Sarbanes-Oxley ("Sarbox")
-------Increased reporting requirements and responsibility of corporate directors
-------Personal consequences for non-compliance
What are agency problems, and why do they exist within a corporation? - Answer Conflict of
interest between principal and agent
What are the 3 major forms of business organization? - Answer 1. Sole Proprietorship
2. Partnership
-General Partnership
- Limited Partnership
3. Corporation
Shareholder - Answer A shareholder or stockholder is an individual or institution (including a
corporation) that legally owns one or more shares of stock in a public or private corporation.
Delisting - Answer Refers to the practice of removing the stock of a company from a stock
exchange so that investors can no longer trade shares of the stock on that exchange
,Payback period rule - Answer investment is acceptable if its calculated payback is less than
some prespecified number of years.
Payback (Drawbacks) - Answer -No discounting involved
-Doesn't consider risk differences
-How do we determine the cutoff point
-Biased toward short-term investments
Payback Period - Answer length of time until the accumulated cash flows equal or exceed the
original investment, i.e., how fast you recover your initial investment
Shareholder Wealth Maximization - Answer The primary goal of the firm. Equivalent to
maximizing the firm's stock price.
IRR - Answer internal rate of return
Internal Rate of Return (IRR) - Answer the rate that makes the present value of the future
cash flows equal to the initial cost or investment. In other words, the discount rate that gives a
project a $0 NPV.
True or False:
The goal of IRR is not to find zero NPV projects, but rather to find a range of discount rates for
which the project is acceptable. - Answer True
True or False:
IRRs are easy to understand and to communicate. - Answer True
True or False:
An advantage with IRRs that they can distinguish between investing and borrowing. - Answer
False.
IRRs cannot distinguish between investing and borrowing making it disadvantage.
, True or False:
A disadvantage for IRRs is there may not be one or there may be multiple IRRs. - Answer
True.
this is a disadvantage.
Short Selling - Answer selling stock borrowed from a broker with the intention of buying it
back later at a lower price, repaying the broker, and keeping the profit
What are 3 things to keep in mind when analyzing an income statement? - Answer 1.
Generally Accepted Accounting Principles (GAAP)
2. Non-cash items
3. Time & Cost
When analyzing a balance sheet, the finance manager should be aware of 3 concerns? - Answer
1. Liquidity
2. Debt v. Equity
3. Value v. Cost
Liquidity - Answer the ease with which an asset can be converted into cash
What is a corporation? - Answer a company or group of people authorized to act as a single
entity (legally a person) and recognized as such in law, with various rights and duties including
the capacity of succession.
What are the 3 basic questions Financial Managers must answer? - Answer 1. What long-
term investments should the firm choose?
2. How should the firm raise funds for the selected investments?
3. How should short-term assets be managed and financed?
PI - Answer The Profitability Index
The Profitability Index - Answer PI= Total PV of future cash flows/initial investments
True or False:
