FINANCIAL MANAGEMENT FOR DECISION
MAKERS CERTIFICATION EVALUATION
EXAMS SET FULL QUESTIONS AND
COMPLETE SOLUTION
●● Why profit maximization is not the goal
Answer: Profit ignores timing, risk, and cash flows; shareholder wealth
accounts for all three.
●● Capital Budgeting
Answer: Decisions about which long-term projects or investments a firm
should undertake (Size, timing, and risk of future cash flows)
●● Capital Structure
Answer: Decisions about how a firm finances its assets using debt,
equity, or both.
●● Working Capital Management
Answer: Management of short-term assets and liabilities for day-to-day
operations.
●● Agency Problem
, Answer: Conflict of interest between managers (agents) and
shareholders (principals).
●● Agency Costs
Answer: Costs incurred to monitor managers or align their incentives
with shareholders.
●● Reducucing Agency Problems
Answer: Incentive compensation, managerial ownership, and threat of
takeover.
●● Sole Proprietorship
Answer: Single-owner business with unlimited liability and limited
capital.
●● Partnership
Answer: Business owned by two or more people; general partners have
unlimited liability.
●● Corporation
Answer: Separate legal entity with limited liability, unlimited life, and
agency problems.
●● Double Taxation
MAKERS CERTIFICATION EVALUATION
EXAMS SET FULL QUESTIONS AND
COMPLETE SOLUTION
●● Why profit maximization is not the goal
Answer: Profit ignores timing, risk, and cash flows; shareholder wealth
accounts for all three.
●● Capital Budgeting
Answer: Decisions about which long-term projects or investments a firm
should undertake (Size, timing, and risk of future cash flows)
●● Capital Structure
Answer: Decisions about how a firm finances its assets using debt,
equity, or both.
●● Working Capital Management
Answer: Management of short-term assets and liabilities for day-to-day
operations.
●● Agency Problem
, Answer: Conflict of interest between managers (agents) and
shareholders (principals).
●● Agency Costs
Answer: Costs incurred to monitor managers or align their incentives
with shareholders.
●● Reducucing Agency Problems
Answer: Incentive compensation, managerial ownership, and threat of
takeover.
●● Sole Proprietorship
Answer: Single-owner business with unlimited liability and limited
capital.
●● Partnership
Answer: Business owned by two or more people; general partners have
unlimited liability.
●● Corporation
Answer: Separate legal entity with limited liability, unlimited life, and
agency problems.
●● Double Taxation
