FINA 365 Exam 1 – Updated Actual Questions and
Answers with Rationales 2026/2027
SECTION 1 — CORPORATE FINANCE FOUNDATIONS
Question 1
What is the primary objective of financial management in a corporation?
A. Maximize accounting expenses
B. Maximize shareholder wealth
C. Maximize employee turnover
D. Minimize total sales
Answer: B. Maximize shareholder wealth
Rationale: Financial management focuses on decisions that increase the
economic value of the firm to its owners while considering risk and timing of cash
flows.
Question 2
Which of the following is a major corporate finance decision?
A. Investment decision
B. Office decoration
C. Employee dress policy
D. Advertising color selection
Answer: A. Investment decision
Rationale: The major financial decisions include investment, financing, and
payout decisions.
,Question 3
Capital budgeting primarily involves:
A. Managing payroll
B. Evaluating long-term investment projects
C. Preparing tax returns
D. Managing employee schedules
Answer: B. Evaluating long-term investment projects
Rationale: Capital budgeting determines which long-term assets and projects
should receive company funds.
Question 4
A financing decision determines:
A. Which long-term assets to purchase
B. How the firm obtains funds
C. Which customers receive discounts
D. How much inventory to order
Answer: B. How the firm obtains funds
Rationale: Financing decisions concern the sources and mix of funds used to
finance company activities.
Question 5
Which decision determines whether earnings are distributed to shareholders?
A. Capital budgeting decision
B. Dividend or payout decision
C. Inventory decision
D. Credit decision
Answer: B. Dividend or payout decision
,Rationale: Payout decisions determine how much cash is returned to
shareholders versus retained for reinvestment.
Question 6
In a corporation, shareholders are generally:
A. Creditors
B. Owners
C. Employees
D. Suppliers
Answer: B. Owners
Rationale: Common shareholders own equity interests in the corporation.
Question 7
Managers are considered agents because they:
A. Own all corporate assets personally
B. Act on behalf of shareholders
C. Lend money to the corporation
D. Audit the corporation
Answer: B. Act on behalf of shareholders
Rationale: Shareholders are principals and managers are agents who make
decisions on behalf of the owners.
Question 8
An agency conflict can arise when:
A. Managers pursue personal objectives inconsistent with shareholder interests
B. Assets equal liabilities plus equity
C. Sales increase
D. Cash is collected from customers
, Answer: A. Managers pursue personal objectives inconsistent with shareholder
interests
Rationale: Agency conflicts arise because managers may have incentives that
differ from those of shareholders.
Question 9
Which can help reduce agency conflicts?
A. Performance-based compensation
B. Eliminating financial reporting
C. Eliminating the board of directors
D. Preventing shareholder voting
Answer: A. Performance-based compensation
Rationale: Linking compensation to company performance can better align
management incentives with shareholder interests.
Question 10
Corporate governance is primarily concerned with:
A. Direction and control of corporations
B. Inventory storage
C. Product packaging
D. Employee scheduling
Answer: A. Direction and control of corporations
Rationale: Corporate governance establishes oversight, accountability, and
decision-making structures within corporations.
Question 11
Which factor is most important when evaluating a financial decision?
Answers with Rationales 2026/2027
SECTION 1 — CORPORATE FINANCE FOUNDATIONS
Question 1
What is the primary objective of financial management in a corporation?
A. Maximize accounting expenses
B. Maximize shareholder wealth
C. Maximize employee turnover
D. Minimize total sales
Answer: B. Maximize shareholder wealth
Rationale: Financial management focuses on decisions that increase the
economic value of the firm to its owners while considering risk and timing of cash
flows.
Question 2
Which of the following is a major corporate finance decision?
A. Investment decision
B. Office decoration
C. Employee dress policy
D. Advertising color selection
Answer: A. Investment decision
Rationale: The major financial decisions include investment, financing, and
payout decisions.
,Question 3
Capital budgeting primarily involves:
A. Managing payroll
B. Evaluating long-term investment projects
C. Preparing tax returns
D. Managing employee schedules
Answer: B. Evaluating long-term investment projects
Rationale: Capital budgeting determines which long-term assets and projects
should receive company funds.
Question 4
A financing decision determines:
A. Which long-term assets to purchase
B. How the firm obtains funds
C. Which customers receive discounts
D. How much inventory to order
Answer: B. How the firm obtains funds
Rationale: Financing decisions concern the sources and mix of funds used to
finance company activities.
Question 5
Which decision determines whether earnings are distributed to shareholders?
A. Capital budgeting decision
B. Dividend or payout decision
C. Inventory decision
D. Credit decision
Answer: B. Dividend or payout decision
,Rationale: Payout decisions determine how much cash is returned to
shareholders versus retained for reinvestment.
Question 6
In a corporation, shareholders are generally:
A. Creditors
B. Owners
C. Employees
D. Suppliers
Answer: B. Owners
Rationale: Common shareholders own equity interests in the corporation.
Question 7
Managers are considered agents because they:
A. Own all corporate assets personally
B. Act on behalf of shareholders
C. Lend money to the corporation
D. Audit the corporation
Answer: B. Act on behalf of shareholders
Rationale: Shareholders are principals and managers are agents who make
decisions on behalf of the owners.
Question 8
An agency conflict can arise when:
A. Managers pursue personal objectives inconsistent with shareholder interests
B. Assets equal liabilities plus equity
C. Sales increase
D. Cash is collected from customers
, Answer: A. Managers pursue personal objectives inconsistent with shareholder
interests
Rationale: Agency conflicts arise because managers may have incentives that
differ from those of shareholders.
Question 9
Which can help reduce agency conflicts?
A. Performance-based compensation
B. Eliminating financial reporting
C. Eliminating the board of directors
D. Preventing shareholder voting
Answer: A. Performance-based compensation
Rationale: Linking compensation to company performance can better align
management incentives with shareholder interests.
Question 10
Corporate governance is primarily concerned with:
A. Direction and control of corporations
B. Inventory storage
C. Product packaging
D. Employee scheduling
Answer: A. Direction and control of corporations
Rationale: Corporate governance establishes oversight, accountability, and
decision-making structures within corporations.
Question 11
Which factor is most important when evaluating a financial decision?
