FINANCIAL MANAGEMENT EXAM 1 KEY
CONCEPTS AND PRACTICE QUESTIONS
◉ Partnership (2).
Answer: Parntershipl: an association of two or more persons who
come together as co-owners for the purpose of operating a business
for profit.
Limited: a partnership in which one or more of the partners have
limited liability that is restricted to the amount of capital her or she
invests in the partnership.
◉ Partnership Overall.
Answer: 1. Unlimited partners
2. Unlimited Liability
3. Owners manage firm
4. Ownership change dissolves firm
5. Very limited access to capital
6. Personal taxation
◉ Limited Partnership Overall.
Answer: 1. One GP and unlimited partners.
2. GP unlimited liability, LP liable for only what they invest.
,3. GP manages firm, LP no role in management
4. GP change can dissolve firm, but LP can change freely
5. Limited access to capital
6. Personal Taxation
◉ Corporation.
Answer: A business entity that legally functions separate and apart
from the owners. Owners are the shareholders and stockholders.
Their goal is to maximize the total market value of the firm's
common stock.
◉ Corporation Overall.
Answer: 1. Unlimited Partners
2. No liability for firm's debts
3. Owners don't manage firm, but they have owners stake.
4. Change in ownership don't dissolve the firm
5. Unlimited access to capital
6. Double taxation
◉ Double Taxation.
Answer: Earning taxed on a corporate level and dividends taxed on a
personal level.
, When profit is earned, the profit is taxed first and then pays some of
that profit back to the shareholders then the shareholders pay a
personal tax on those dividends second.
◉ Equity.
Answer: The ownership interest in a corporation. It is the
stockholder's investment in the firm and the cumulative profits
retained in the business up to the date of the balance sheet.
◉ Dividends.
Answer: The portion of the corporation's earnings that are
distributed to its shareholders.
◉ Profit Maximization.
Answer: this is not an adequate goal of the firm when making a
financial decision because it ignores the risk inherent in different
projects that will generate profits. It does not reflect the
shareholder's wealth, it ignores the timing of a projects returns.
◉ Goal of Financial Manager.
Answer: Maximizing shareholders' wealth by maximizing the stock
price. Doing the right thing leads to long-term increase in the value
of shares. Ethical considerations, they have the responsibility to
make sure everything is being done accurately and completely.
Protects the investors, safeguards the interest of shareholders. It
CONCEPTS AND PRACTICE QUESTIONS
◉ Partnership (2).
Answer: Parntershipl: an association of two or more persons who
come together as co-owners for the purpose of operating a business
for profit.
Limited: a partnership in which one or more of the partners have
limited liability that is restricted to the amount of capital her or she
invests in the partnership.
◉ Partnership Overall.
Answer: 1. Unlimited partners
2. Unlimited Liability
3. Owners manage firm
4. Ownership change dissolves firm
5. Very limited access to capital
6. Personal taxation
◉ Limited Partnership Overall.
Answer: 1. One GP and unlimited partners.
2. GP unlimited liability, LP liable for only what they invest.
,3. GP manages firm, LP no role in management
4. GP change can dissolve firm, but LP can change freely
5. Limited access to capital
6. Personal Taxation
◉ Corporation.
Answer: A business entity that legally functions separate and apart
from the owners. Owners are the shareholders and stockholders.
Their goal is to maximize the total market value of the firm's
common stock.
◉ Corporation Overall.
Answer: 1. Unlimited Partners
2. No liability for firm's debts
3. Owners don't manage firm, but they have owners stake.
4. Change in ownership don't dissolve the firm
5. Unlimited access to capital
6. Double taxation
◉ Double Taxation.
Answer: Earning taxed on a corporate level and dividends taxed on a
personal level.
, When profit is earned, the profit is taxed first and then pays some of
that profit back to the shareholders then the shareholders pay a
personal tax on those dividends second.
◉ Equity.
Answer: The ownership interest in a corporation. It is the
stockholder's investment in the firm and the cumulative profits
retained in the business up to the date of the balance sheet.
◉ Dividends.
Answer: The portion of the corporation's earnings that are
distributed to its shareholders.
◉ Profit Maximization.
Answer: this is not an adequate goal of the firm when making a
financial decision because it ignores the risk inherent in different
projects that will generate profits. It does not reflect the
shareholder's wealth, it ignores the timing of a projects returns.
◉ Goal of Financial Manager.
Answer: Maximizing shareholders' wealth by maximizing the stock
price. Doing the right thing leads to long-term increase in the value
of shares. Ethical considerations, they have the responsibility to
make sure everything is being done accurately and completely.
Protects the investors, safeguards the interest of shareholders. It
