FINC 3610 — Harrelson Exam 1 Questions &
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FINC 3610 – Harrelson Exam 1 Practice
Verified Questions & Answers (2026/2027 Update)
SECTION 1: INTRODUCTION TO CORPORATE FINANCE
1. What are the four basic areas of finance?
A. Banking, investments, insurance, real estate
B. Corporate finance, investments, financial institutions, international finance
C. Accounting, economics, management, marketing
D. Stocks, bonds, derivatives, commodities
Correct Answer: B. Corporate finance, investments, financial institutions,
international finance. Rationale: The four basic areas of finance are corporate
finance (business finance), investments, financial institutions, and international
finance.
2. What are the three major questions of corporate finance?
A. What to sell, how to price, how to market
B. What long-term investments to make, how to finance those investments, how
to manage day-to-day operations
C. How to hire, how to train, how to retain employees
D. How to budget, how to audit, how to report
,Correct Answer: B. What long-term investments to make, how to finance those
investments, how to manage day-to-day operations. Rationale: Corporate
finance focuses on capital budgeting, capital structure, and working capital
management.
3. What is capital budgeting?
A. The process of planning and managing the firm's long-term investments
B. The mix of debt and equity
C. The management of short-term assets
D. The process of raising capital
Correct Answer: A. The process of planning and managing the firm's long-term
investments. Rationale: Capital budgeting involves deciding what long-term
investments or projects the business should take on.
4. What is capital structure?
A. The process of planning long-term investments
B. The mixture of debt and equity maintained by a firm to finance its operations
C. The management of short-term assets
D. The process of paying dividends
Correct Answer: B. The mixture of debt and equity maintained by a firm to
finance its operations. Rationale: Capital structure is the mix of debt and equity
describing how the firm is financed.
5. What is working capital management?
A. The process of planning long-term investments
B. The mixture of debt and equity
C. The management of a firm's short-term assets and liabilities
D. The process of raising capital
,Correct Answer: C. The management of a firm's short-term assets and liabilities.
Rationale: Working capital management involves managing the firm's day-to-day
cash and short-term assets and liabilities.
6. What is the Balance Sheet Identity?
A. Revenues - Expenses = Net Income
B. Assets = Liabilities + Stockholders' Equity
C. Cash In - Cash Out = Net Cash Flow
D. Sales - Costs = Profit
Correct Answer: B. Assets = Liabilities + Stockholders' Equity. Rationale: This is
the fundamental accounting equation underlying the balance sheet.
7. What is the primary goal of financial management?
A. Maximize profits
B. Maximize the current value per share / maximize shareholder wealth
C. Minimize costs
D. Maximize market share
Correct Answer: B. Maximize the current value per share / maximize shareholder
wealth. Rationale: The goal of the firm is to maximize shareholder wealth, not
short-term profits.
8. What is an agency relationship?
A. A relationship between a firm and its customers
B. A relationship where a principal hires an agent to represent their interests
C. A relationship between debt and equity holders
D. A relationship between the firm and the government
, Correct Answer: B. A relationship where a principal hires an agent to represent
their interests. Rationale: Stockholders (principals) hire managers (agents) to run
the company.
9. What is an agency problem?
A. Conflict of interest between the firm and its customers
B. Conflict of interest between principal (stockholders) and agent (management)
C. Conflict between debt and equity holders
D. Conflict between the firm and the government
Correct Answer: B. Conflict of interest between principal (stockholders) and
agent (management). Rationale: Agency conflict occurs when managers' interests
diverge from shareholders' interests.
10. What is an example of an action that creates an agency problem?
A. Increasing current profits when doing so lowers the value of the firm's equity
B. Maximizing shareholder value
C. Investing in positive NPV projects
D. Paying dividends
Correct Answer: A. Increasing current profits when doing so lowers the value of
the firm's equity. Rationale: This action prioritizes short-term profits over long-
term firm value, harming shareholders.
11. What are direct agency costs?
A. Missed opportunities
B. Wasteful spending and monitoring/auditing costs
C. Lost sales
D. Employee turnover
Answers| Latest Update 2027| Pass
Guaranteed
FINC 3610 – Harrelson Exam 1 Practice
Verified Questions & Answers (2026/2027 Update)
SECTION 1: INTRODUCTION TO CORPORATE FINANCE
1. What are the four basic areas of finance?
A. Banking, investments, insurance, real estate
B. Corporate finance, investments, financial institutions, international finance
C. Accounting, economics, management, marketing
D. Stocks, bonds, derivatives, commodities
Correct Answer: B. Corporate finance, investments, financial institutions,
international finance. Rationale: The four basic areas of finance are corporate
finance (business finance), investments, financial institutions, and international
finance.
2. What are the three major questions of corporate finance?
A. What to sell, how to price, how to market
B. What long-term investments to make, how to finance those investments, how
to manage day-to-day operations
C. How to hire, how to train, how to retain employees
D. How to budget, how to audit, how to report
,Correct Answer: B. What long-term investments to make, how to finance those
investments, how to manage day-to-day operations. Rationale: Corporate
finance focuses on capital budgeting, capital structure, and working capital
management.
3. What is capital budgeting?
A. The process of planning and managing the firm's long-term investments
B. The mix of debt and equity
C. The management of short-term assets
D. The process of raising capital
Correct Answer: A. The process of planning and managing the firm's long-term
investments. Rationale: Capital budgeting involves deciding what long-term
investments or projects the business should take on.
4. What is capital structure?
A. The process of planning long-term investments
B. The mixture of debt and equity maintained by a firm to finance its operations
C. The management of short-term assets
D. The process of paying dividends
Correct Answer: B. The mixture of debt and equity maintained by a firm to
finance its operations. Rationale: Capital structure is the mix of debt and equity
describing how the firm is financed.
5. What is working capital management?
A. The process of planning long-term investments
B. The mixture of debt and equity
C. The management of a firm's short-term assets and liabilities
D. The process of raising capital
,Correct Answer: C. The management of a firm's short-term assets and liabilities.
Rationale: Working capital management involves managing the firm's day-to-day
cash and short-term assets and liabilities.
6. What is the Balance Sheet Identity?
A. Revenues - Expenses = Net Income
B. Assets = Liabilities + Stockholders' Equity
C. Cash In - Cash Out = Net Cash Flow
D. Sales - Costs = Profit
Correct Answer: B. Assets = Liabilities + Stockholders' Equity. Rationale: This is
the fundamental accounting equation underlying the balance sheet.
7. What is the primary goal of financial management?
A. Maximize profits
B. Maximize the current value per share / maximize shareholder wealth
C. Minimize costs
D. Maximize market share
Correct Answer: B. Maximize the current value per share / maximize shareholder
wealth. Rationale: The goal of the firm is to maximize shareholder wealth, not
short-term profits.
8. What is an agency relationship?
A. A relationship between a firm and its customers
B. A relationship where a principal hires an agent to represent their interests
C. A relationship between debt and equity holders
D. A relationship between the firm and the government
, Correct Answer: B. A relationship where a principal hires an agent to represent
their interests. Rationale: Stockholders (principals) hire managers (agents) to run
the company.
9. What is an agency problem?
A. Conflict of interest between the firm and its customers
B. Conflict of interest between principal (stockholders) and agent (management)
C. Conflict between debt and equity holders
D. Conflict between the firm and the government
Correct Answer: B. Conflict of interest between principal (stockholders) and
agent (management). Rationale: Agency conflict occurs when managers' interests
diverge from shareholders' interests.
10. What is an example of an action that creates an agency problem?
A. Increasing current profits when doing so lowers the value of the firm's equity
B. Maximizing shareholder value
C. Investing in positive NPV projects
D. Paying dividends
Correct Answer: A. Increasing current profits when doing so lowers the value of
the firm's equity. Rationale: This action prioritizes short-term profits over long-
term firm value, harming shareholders.
11. What are direct agency costs?
A. Missed opportunities
B. Wasteful spending and monitoring/auditing costs
C. Lost sales
D. Employee turnover
