ASU FIN 300 EXAM 1 (CH 1-4) UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question 1.
Three areas of finance:
ANSWER
1. *Financial Management*
-buying/selling of assets -financing choices -control costs
2. *Investments*
-purchasing and holding assets & securities -stocks and bonds
3. *Financial Markets*
-capital markets -money markets -financial intermediaries (banks or credit unions)
Question 2.
Productive assets
ANSWER
the long-term tangible and intangible *assets* a firm uses *to generate cash flows* Tangible =
equipment etc. intangible = patents, trademarks, technical experience when purchase productive
assets = *capital budgeting*
Question 3.
Financial Managers should make decisions that maximize
ANSWER
the *value of the owner's stock* which helps maximize the *owner's wealth* (the economic value of
the assets the owners possesses)
Question 4.
Stakeholder
ANSWER
anyone other than the owner (stockholder) with a claim on the cash flows of a firm (employees,
customers, creditors, suppliers, the government)
Question 5.
3 fundamental decisions in financial management
ANSWER
a. *Capital budgeting*- which productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through
selling long term *debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets
invested to earn a return
1
,Question 6.
Capital Budgeting
ANSWER
*which productive assets* the firm *should purchase* and how much money the firm can afford to
spend *long term assets* on balance sheets/investments/ productive assets both tangible and
intangible
Question 7.
Financing decisions
ANSWER
how firms raise cash to pay for their iterm-55nvestments ex: productive assets financed by long term
borrowing or equity investment debt financing - advantage=tax deductable but increase firms risk
because contractual obligation to make interest payments equity- has no maturity/guarantee of
payments. *long term liability (debt) and equity*
Question 8.
Working capital management decisions
ANSWER
how to manage the firm's *current assets and current liabilities* *day to day* management of short
term asserts and liabilities -mismanagement cause firm to go into debt/*bankruptcy* -*profitability
affected*
Question 9.
Capital structure
ANSWER
the mix of debt and equity that is used to finance a firm
Question 10.
Net working capital
ANSWER
the dollar difference between total current assets and total current liabilities
Question 11.
Capital Markets Flow
ANSWER
financial markets where equity and debt instruments with maturities greater than one year are
traded tors and taxes, can be distributed to owners as cash dividend or by repurchasing shares or
reinvested into business
2
, Question 12.
Cash flows between firms and stake/stockholders
ANSWER
A. Cash flows generated by productive assets through sale of goods/services
management invests in current and productive long term assets cash paid as wages, to suppliers, as
interest, as taxes to employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
cash reinvested in business cash used to pay dividends/repurchase shares
Question 13.
Forms of Business Organization
ANSWER
1. *Sole proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional management, corporate
income taxed twice, conflicting goals between owners and management
d. LLC- owners not personally responsible, combine corporation with sole proprietorship
Question 14.
Sole proprietorship
ANSWER
-owner = *1 person* -*taxes*= as *personal* income, paid once -*liability= all to owner* -life =
limited to owner, no stock to sell -*capital = very limited / difficult* to raise -least expensive
Question 15.
General Partnership
ANSWER
-owner = *2+ people* all *owners and managers* -*taxes*= *to partners*, deductions available
-*liability= all to partners* (*responsible for others* partners actions) -*life = flexible* limited to
partners but can be transferred -*capital = limited* -owner/manager conflict = no -harder to sell
shares
3
QUESTIONS AND CORRECT ANSWERS
Question 1.
Three areas of finance:
ANSWER
1. *Financial Management*
-buying/selling of assets -financing choices -control costs
2. *Investments*
-purchasing and holding assets & securities -stocks and bonds
3. *Financial Markets*
-capital markets -money markets -financial intermediaries (banks or credit unions)
Question 2.
Productive assets
ANSWER
the long-term tangible and intangible *assets* a firm uses *to generate cash flows* Tangible =
equipment etc. intangible = patents, trademarks, technical experience when purchase productive
assets = *capital budgeting*
Question 3.
Financial Managers should make decisions that maximize
ANSWER
the *value of the owner's stock* which helps maximize the *owner's wealth* (the economic value of
the assets the owners possesses)
Question 4.
Stakeholder
ANSWER
anyone other than the owner (stockholder) with a claim on the cash flows of a firm (employees,
customers, creditors, suppliers, the government)
Question 5.
3 fundamental decisions in financial management
ANSWER
a. *Capital budgeting*- which productive assets to buy
b. *Financing decisions*- raising money to buy more p assets, mainly through
selling long term *debt and equity*
c. *Working capital* decisions- involve how firms *manage their current assets
invested to earn a return
1
,Question 6.
Capital Budgeting
ANSWER
*which productive assets* the firm *should purchase* and how much money the firm can afford to
spend *long term assets* on balance sheets/investments/ productive assets both tangible and
intangible
Question 7.
Financing decisions
ANSWER
how firms raise cash to pay for their iterm-55nvestments ex: productive assets financed by long term
borrowing or equity investment debt financing - advantage=tax deductable but increase firms risk
because contractual obligation to make interest payments equity- has no maturity/guarantee of
payments. *long term liability (debt) and equity*
Question 8.
Working capital management decisions
ANSWER
how to manage the firm's *current assets and current liabilities* *day to day* management of short
term asserts and liabilities -mismanagement cause firm to go into debt/*bankruptcy* -*profitability
affected*
Question 9.
Capital structure
ANSWER
the mix of debt and equity that is used to finance a firm
Question 10.
Net working capital
ANSWER
the dollar difference between total current assets and total current liabilities
Question 11.
Capital Markets Flow
ANSWER
financial markets where equity and debt instruments with maturities greater than one year are
traded tors and taxes, can be distributed to owners as cash dividend or by repurchasing shares or
reinvested into business
2
, Question 12.
Cash flows between firms and stake/stockholders
ANSWER
A. Cash flows generated by productive assets through sale of goods/services
management invests in current and productive long term assets cash paid as wages, to suppliers, as
interest, as taxes to employees, suppliers, creditors and government (stockholders)
B. Residual Cash Flow
cash reinvested in business cash used to pay dividends/repurchase shares
Question 13.
Forms of Business Organization
ANSWER
1. *Sole proprietorship*- one person
2. *General Partnership*
3. *Limited Partnership*
4. *Limited Liability* Partnership or Company (LLP / LCC)
5. *Corporation*
a) C corp
b) *S Corp*
c. Corporation- separate legal status and ability to recruit professional management, corporate
income taxed twice, conflicting goals between owners and management
d. LLC- owners not personally responsible, combine corporation with sole proprietorship
Question 14.
Sole proprietorship
ANSWER
-owner = *1 person* -*taxes*= as *personal* income, paid once -*liability= all to owner* -life =
limited to owner, no stock to sell -*capital = very limited / difficult* to raise -least expensive
Question 15.
General Partnership
ANSWER
-owner = *2+ people* all *owners and managers* -*taxes*= *to partners*, deductions available
-*liability= all to partners* (*responsible for others* partners actions) -*life = flexible* limited to
partners but can be transferred -*capital = limited* -owner/manager conflict = no -harder to sell
shares
3
