PRINCIPLES OF CORPORATE FINANCE
ACTUAL TEST BANK QUESTIONS AND
DETAILED SOLUTIONS EXPERT REVIEWED
RESOURCE
●● Intangible Assets
Answer: long-term assets (e.g., patents, trademarks, copyrights) that
have no real physical form but do have value
●● Real Assets
Answer: physical property like gold, machinery, equipment, or real
estate. They can be tangible and intangible.
●● Financial asset
Answer: a paper claim that entitles the buyer to future income from the
seller, like bonds, stocks, derivatives, claims on real assets, claims on
income generated from real assets.
●● Investment decision
Answer: the decision to build, buy, or lease plants and equipment; to
enter or exit an industry
●● Financial decision
, Answer: purchase of real estate
●● Capital Budgeting/Capital Expenditure (CAPEX)
Answer: •Decision to invest in tangible or intangible assets
●● Financing Decision
Answer: Debt: If it borrows, the lenders contribute the cash, and the
corporation promises to pay back the debt plus a fixed rate of interest.
Equity: If the shareholders put up the cash, they do not get a fixed
return, but they hold shares of stock and therefore get a fraction of future
profits and cash flow.
●● Capital Structure
Answer: choice between debt and equity financing
●● Equity financing
Answer: •Corporations raise equity financing in two ways. First,they can
issue new shares of stock. The investors who buy the new shares put up
cash in exchange for a fraction of the corporation's future cash flow and
profits.
Second, the corporation can take the cash flow generated by its existing
assets and reinvest the cash in new assets. In this case, the corporation is
reinvesting on behalf of existing stockholders. No new shares are issued.
ACTUAL TEST BANK QUESTIONS AND
DETAILED SOLUTIONS EXPERT REVIEWED
RESOURCE
●● Intangible Assets
Answer: long-term assets (e.g., patents, trademarks, copyrights) that
have no real physical form but do have value
●● Real Assets
Answer: physical property like gold, machinery, equipment, or real
estate. They can be tangible and intangible.
●● Financial asset
Answer: a paper claim that entitles the buyer to future income from the
seller, like bonds, stocks, derivatives, claims on real assets, claims on
income generated from real assets.
●● Investment decision
Answer: the decision to build, buy, or lease plants and equipment; to
enter or exit an industry
●● Financial decision
, Answer: purchase of real estate
●● Capital Budgeting/Capital Expenditure (CAPEX)
Answer: •Decision to invest in tangible or intangible assets
●● Financing Decision
Answer: Debt: If it borrows, the lenders contribute the cash, and the
corporation promises to pay back the debt plus a fixed rate of interest.
Equity: If the shareholders put up the cash, they do not get a fixed
return, but they hold shares of stock and therefore get a fraction of future
profits and cash flow.
●● Capital Structure
Answer: choice between debt and equity financing
●● Equity financing
Answer: •Corporations raise equity financing in two ways. First,they can
issue new shares of stock. The investors who buy the new shares put up
cash in exchange for a fraction of the corporation's future cash flow and
profits.
Second, the corporation can take the cash flow generated by its existing
assets and reinvest the cash in new assets. In this case, the corporation is
reinvesting on behalf of existing stockholders. No new shares are issued.
