FINA 365 Exam V1 – Updated Actual Questions
and Answers with Rationales 2026/2027
SECTION 1: CORPORATE FINANCE FOUNDATIONS
Question 1
What is the primary financial objective of a corporation?
A. Maximize accounting profit
B. Maximize shareholder wealth
C. Minimize employee compensation
D. Maximize sales regardless of cost
Answer: B. Maximize shareholder wealth
Rationale: Corporate financial decisions are generally evaluated according to their
effect on the value of the firm's equity and therefore shareholder wealth.
Question 2
Which decision involves determining which long-term assets a firm should
acquire?
A. Financing decision
B. Dividend decision
C. Investment decision
D. Working-capital decision
Answer: C. Investment decision
Rationale: Investment decisions determine which projects or assets the firm
should undertake and are commonly evaluated through capital-budgeting
techniques.
,Question 3
Which of the following is primarily a financing decision?
A. Purchasing a new factory
B. Selecting a new production machine
C. Choosing between debt and equity financing
D. Increasing inventory
Answer: C. Choosing between debt and equity financing
Rationale: Financing decisions determine how a firm's investments are funded.
Question 4
A principal-agent problem occurs because:
A. Investors always have more information than managers
B. Managers and owners may have different interests
C. Taxes eliminate shareholder conflicts
D. Creditors control all corporate decisions
Answer: B. Managers and owners may have different interests
Rationale: Managers act as agents for shareholders, and their personal objectives
may sometimes conflict with shareholder wealth maximization.
Question 5
Which action can help reduce agency conflicts?
A. Eliminating financial reporting
B. Performance-based managerial compensation
C. Removing all shareholders
D. Increasing information asymmetry
Answer: B. Performance-based managerial compensation
,Rationale: Compensation tied to firm performance can better align managers'
incentives with those of shareholders.
Question 6
Which stakeholder generally provides capital in exchange for an ownership claim?
A. Supplier
B. Employee
C. Common shareholder
D. Tax authority
Answer: C. Common shareholder
Rationale: Common shareholders provide equity capital and receive an ownership
interest in the corporation.
Question 7
A firm's value is most directly affected by:
A. The number of employees alone
B. Expected future cash flows and their risk
C. Historical sales only
D. The firm's building size
Answer: B. Expected future cash flows and their risk
Rationale: Financial valuation discounts expected future cash flows according to
their risk and timing.
Question 8
Which principle states that a dollar received today is generally worth more than a
dollar received in the future?
A. Agency principle
B. Time-value-of-money principle
, C. Diversification principle
D. Matching principle
Answer: B. Time-value-of-money principle
Rationale: Money available today can be invested and earn a return, making it
more valuable than the same nominal amount received later.
Question 9
Why is risk important in corporate finance?
A. Risk has no effect on required return
B. Investors generally require compensation for bearing risk
C. Risk always increases firm value
D. Risk eliminates the need for valuation
Answer: B. Investors generally require compensation for bearing risk
Rationale: Higher perceived risk generally requires a higher expected or required
return.
Question 10
Which financial decision most directly determines the firm's capital structure?
A. Inventory ordering
B. Debt-equity financing mix
C. Product pricing
D. Advertising spending
Answer: B. Debt-equity financing mix
Rationale: Capital structure refers primarily to the mix of debt and equity used to
finance the firm.
Question 11
and Answers with Rationales 2026/2027
SECTION 1: CORPORATE FINANCE FOUNDATIONS
Question 1
What is the primary financial objective of a corporation?
A. Maximize accounting profit
B. Maximize shareholder wealth
C. Minimize employee compensation
D. Maximize sales regardless of cost
Answer: B. Maximize shareholder wealth
Rationale: Corporate financial decisions are generally evaluated according to their
effect on the value of the firm's equity and therefore shareholder wealth.
Question 2
Which decision involves determining which long-term assets a firm should
acquire?
A. Financing decision
B. Dividend decision
C. Investment decision
D. Working-capital decision
Answer: C. Investment decision
Rationale: Investment decisions determine which projects or assets the firm
should undertake and are commonly evaluated through capital-budgeting
techniques.
,Question 3
Which of the following is primarily a financing decision?
A. Purchasing a new factory
B. Selecting a new production machine
C. Choosing between debt and equity financing
D. Increasing inventory
Answer: C. Choosing between debt and equity financing
Rationale: Financing decisions determine how a firm's investments are funded.
Question 4
A principal-agent problem occurs because:
A. Investors always have more information than managers
B. Managers and owners may have different interests
C. Taxes eliminate shareholder conflicts
D. Creditors control all corporate decisions
Answer: B. Managers and owners may have different interests
Rationale: Managers act as agents for shareholders, and their personal objectives
may sometimes conflict with shareholder wealth maximization.
Question 5
Which action can help reduce agency conflicts?
A. Eliminating financial reporting
B. Performance-based managerial compensation
C. Removing all shareholders
D. Increasing information asymmetry
Answer: B. Performance-based managerial compensation
,Rationale: Compensation tied to firm performance can better align managers'
incentives with those of shareholders.
Question 6
Which stakeholder generally provides capital in exchange for an ownership claim?
A. Supplier
B. Employee
C. Common shareholder
D. Tax authority
Answer: C. Common shareholder
Rationale: Common shareholders provide equity capital and receive an ownership
interest in the corporation.
Question 7
A firm's value is most directly affected by:
A. The number of employees alone
B. Expected future cash flows and their risk
C. Historical sales only
D. The firm's building size
Answer: B. Expected future cash flows and their risk
Rationale: Financial valuation discounts expected future cash flows according to
their risk and timing.
Question 8
Which principle states that a dollar received today is generally worth more than a
dollar received in the future?
A. Agency principle
B. Time-value-of-money principle
, C. Diversification principle
D. Matching principle
Answer: B. Time-value-of-money principle
Rationale: Money available today can be invested and earn a return, making it
more valuable than the same nominal amount received later.
Question 9
Why is risk important in corporate finance?
A. Risk has no effect on required return
B. Investors generally require compensation for bearing risk
C. Risk always increases firm value
D. Risk eliminates the need for valuation
Answer: B. Investors generally require compensation for bearing risk
Rationale: Higher perceived risk generally requires a higher expected or required
return.
Question 10
Which financial decision most directly determines the firm's capital structure?
A. Inventory ordering
B. Debt-equity financing mix
C. Product pricing
D. Advertising spending
Answer: B. Debt-equity financing mix
Rationale: Capital structure refers primarily to the mix of debt and equity used to
finance the firm.
Question 11
