TOPICS IN FINANCIAL MANAGEMENT LECTURE
QUESTIONS AND ANSWERS 2024 -2025
What is corporate finance? ANS -The study of how companies allocate resources to achieve their goals.
Decisions about Investments, Financing, and Risk Management.
What are the key areas of corporate finance? ANS -- Capital Budgeting
- Capital Structure/ Dividend Policy
- Risk Management
What are the Microeconomic Foundations of Corporate Finance? ANS -- Behaviour of individuals and
firms in financial markets.
- Valuation of assets and liabilities.
- Optimal investment and financing decisions.
Name and explain the forms of business organizations ANS -1. Sole Proprietorship: Simple structure,
owner has unlimited liability.
2. Partnership: Two or more owners, shared liability, pass-through taxation.
3. Corporation: : Separate legal entity, limited liability, corporate taxation.
4. Limited Liability Company (LLC): Combines limited liability with partnership flexibility, pass-through
taxation by default but can opt for corporate taxation.
How are the advantages and disadvantages of different forms of business organizations assessed? ANS
-- Control
- Liability
, - Funding Needs
Describe the organizational chart of a typical corporation. ANS -Figure.1.
What is the Fisher Separation Principle? ANS -• Investment decisions are independent of financing
decisions.
What are some concepts associated with Market Efficiency and Agency Problems? ANS -• Market
Efficiency
• Information Asymmetry
• Agency Problems
• Corporate Governance
Explain the importance and challenges of Corporate Governance ANS -Importance:
• Good practices improve firm performance and value.
Challenges:
• Measuring effectiveness and specific mechanisms.
What is the role of Financial Intermediaries? ANS -Facilitating capital flow between savers and
investors.
What is the General Principle of Good Financial Management? ANS -- The firm can either keep and
reinvest cash or return it to investors.
- If cash is reinvested, the opportunity cost is the expected rate of return that shareholders could have
obtained by investing in financial assets.
Figure.2.
QUESTIONS AND ANSWERS 2024 -2025
What is corporate finance? ANS -The study of how companies allocate resources to achieve their goals.
Decisions about Investments, Financing, and Risk Management.
What are the key areas of corporate finance? ANS -- Capital Budgeting
- Capital Structure/ Dividend Policy
- Risk Management
What are the Microeconomic Foundations of Corporate Finance? ANS -- Behaviour of individuals and
firms in financial markets.
- Valuation of assets and liabilities.
- Optimal investment and financing decisions.
Name and explain the forms of business organizations ANS -1. Sole Proprietorship: Simple structure,
owner has unlimited liability.
2. Partnership: Two or more owners, shared liability, pass-through taxation.
3. Corporation: : Separate legal entity, limited liability, corporate taxation.
4. Limited Liability Company (LLC): Combines limited liability with partnership flexibility, pass-through
taxation by default but can opt for corporate taxation.
How are the advantages and disadvantages of different forms of business organizations assessed? ANS
-- Control
- Liability
, - Funding Needs
Describe the organizational chart of a typical corporation. ANS -Figure.1.
What is the Fisher Separation Principle? ANS -• Investment decisions are independent of financing
decisions.
What are some concepts associated with Market Efficiency and Agency Problems? ANS -• Market
Efficiency
• Information Asymmetry
• Agency Problems
• Corporate Governance
Explain the importance and challenges of Corporate Governance ANS -Importance:
• Good practices improve firm performance and value.
Challenges:
• Measuring effectiveness and specific mechanisms.
What is the role of Financial Intermediaries? ANS -Facilitating capital flow between savers and
investors.
What is the General Principle of Good Financial Management? ANS -- The firm can either keep and
reinvest cash or return it to investors.
- If cash is reinvested, the opportunity cost is the expected rate of return that shareholders could have
obtained by investing in financial assets.
Figure.2.
