©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
CFIN Chapter 1 & 2 Exam Questions With
Verified Answers
What is finance? - Answers✔the study of money, both cash inflows and outflows
Finance decisions deal with how money is - Answers✔raised and used by businesses,
governments, and individuals.
To make sounds financial decisions you must understand 3 general concepts: 1st -
Answers✔more value is preferred to less
To make sounds financial decisions you must understand 3 general concepts: 2nd - Answers✔the
sooner cash is received, the more valuable it is
To make sounds financial decisions you must understand 3 general concepts: 3rd -
Answers✔less-risky assets are more valuable than risker assets
Three basic forms of business: - Answers✔propreitorship, partnership, and corporation
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 1st: -
Answers✔1. they are easy to form
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 2nd -
Answers✔2. they are subject to few government regulations
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 3rd -
Answers✔3. they are taxed like individuals
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 1st -
Answers✔1. owners have unlimited personal liability for the firms debts
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 2nd -
Answers✔2. the business has limited life
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 3rd -
Answers✔3. transferring ownership is similar to selling a house
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 4th -
Answers✔4. raising large amounts of funds is difficult
Advantages to forming businesses as a corporation: (Total of 4) 1st - Answers✔owners have
limited liability for the firms debt
Advantages to forming businesses as a corporation: (Total of 4) 2nd - Answers✔ownership is
easily transferred through stock transactions
Advantages to forming businesses as a corporation: (Total of 4) 3rd - Answers✔the business has
an unlimited life
Advantages to forming businesses as a corporation: (Total of 4) 4th - Answers✔rasiing large
amounts of funds is easier than for parternerships, because corporations can issue stocks and
bonds, whereas partnerships cannot.
Disadvantages to forming businesses as a corporation (Total of 2) 1st - Answers✔setting up a
corporation is more complex than setting up other forms of business
Disadvantages to forming businesses as a corporation (Total of 2) 2nd - Answers✔earnings paid
to stockholders as dividend are taxed prices
Primary goal of the firm is to - Answers✔maximize shareholder's wealth (carried out by
maximizing the value of the firm/maximizing the value of the firms stock)
Managers are encourage to act int he best interest of shareholders through: (total of 3) -
Answers✔1. compensation plans that reward them for pursuing the correct goals.
2. intervention by shareholders to correct conflicts of interest
3. threat of a takeover, which probably would put top managers out of work
Ethics - Answers✔the standards of conduct that management follow when making business
decisions
corporate governance - Answers✔the set of rules that a firm follows when conducting business.
Foreign firms are generally more closed than US firms of similar sizes, they have fewer
stockholders or owners - Answers✔
Factors that affect multinational firms that typically do not affect purely domestic firms -
Answers✔differences in...
1. currencies
2.languages
ALL RIGHTS RESERVED.
CFIN Chapter 1 & 2 Exam Questions With
Verified Answers
What is finance? - Answers✔the study of money, both cash inflows and outflows
Finance decisions deal with how money is - Answers✔raised and used by businesses,
governments, and individuals.
To make sounds financial decisions you must understand 3 general concepts: 1st -
Answers✔more value is preferred to less
To make sounds financial decisions you must understand 3 general concepts: 2nd - Answers✔the
sooner cash is received, the more valuable it is
To make sounds financial decisions you must understand 3 general concepts: 3rd -
Answers✔less-risky assets are more valuable than risker assets
Three basic forms of business: - Answers✔propreitorship, partnership, and corporation
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 1st: -
Answers✔1. they are easy to form
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 2nd -
Answers✔2. they are subject to few government regulations
Advantages to forming businesses as propreitorships and partnerships: (Total of 3) 3rd -
Answers✔3. they are taxed like individuals
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 1st -
Answers✔1. owners have unlimited personal liability for the firms debts
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 2nd -
Answers✔2. the business has limited life
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 3rd -
Answers✔3. transferring ownership is similar to selling a house
, ©THEBRIGHT EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Disadvantages to forming businesses as propreitorships and partnerships: (Total of 4) 4th -
Answers✔4. raising large amounts of funds is difficult
Advantages to forming businesses as a corporation: (Total of 4) 1st - Answers✔owners have
limited liability for the firms debt
Advantages to forming businesses as a corporation: (Total of 4) 2nd - Answers✔ownership is
easily transferred through stock transactions
Advantages to forming businesses as a corporation: (Total of 4) 3rd - Answers✔the business has
an unlimited life
Advantages to forming businesses as a corporation: (Total of 4) 4th - Answers✔rasiing large
amounts of funds is easier than for parternerships, because corporations can issue stocks and
bonds, whereas partnerships cannot.
Disadvantages to forming businesses as a corporation (Total of 2) 1st - Answers✔setting up a
corporation is more complex than setting up other forms of business
Disadvantages to forming businesses as a corporation (Total of 2) 2nd - Answers✔earnings paid
to stockholders as dividend are taxed prices
Primary goal of the firm is to - Answers✔maximize shareholder's wealth (carried out by
maximizing the value of the firm/maximizing the value of the firms stock)
Managers are encourage to act int he best interest of shareholders through: (total of 3) -
Answers✔1. compensation plans that reward them for pursuing the correct goals.
2. intervention by shareholders to correct conflicts of interest
3. threat of a takeover, which probably would put top managers out of work
Ethics - Answers✔the standards of conduct that management follow when making business
decisions
corporate governance - Answers✔the set of rules that a firm follows when conducting business.
Foreign firms are generally more closed than US firms of similar sizes, they have fewer
stockholders or owners - Answers✔
Factors that affect multinational firms that typically do not affect purely domestic firms -
Answers✔differences in...
1. currencies
2.languages
