Financial Management Exam #1
Questions And Answers Latest Update |
Updated
Finance Definition CORRECT ANSWERS the study of how people and businesses
evaluate investments and raise capital to fund them.
Three Components of Finance CORRECT ANSWERS 1. Capital Budgeting
2. Capital Structure
3. Working Capital Management
Capital Budgeting CORRECT ANSWERS What are we going to put our money into?
What investments should the firm undertake?
The decision making process used to analyze potential investments in fixed assets.
Ex: Introducing a product to a firm.
Capital Structure CORRECT ANSWERS How should the firm raise money to fund these
long term investments? The mix of long-term sources of funds used by the firm.
Ex: How to finance the development and production of a product.
Working Capital Management CORRECT ANSWERS How can the firm best manage
the cash-flows as they arise day to day? It is the management of day-to-day operations
and decisions that relate to working capital and short term financing.
Ex: How much inventory to hold in stock.
Financial Markets CORRECT ANSWERS Mechanisms that allow people to easily buy
and sell financial claims, institutions that facilitate financial transactions.
Sole Proprietorship CORRECT ANSWERS Definition: A business owned by a single
individual who is entitled to all profits and all debt (money that have been borrowed and
must be paid back.
Overview of Sole Proprietorship CORRECT ANSWERS 1. One owner
2. Liable for debt (if the business is being sued, so is the owner).
3. Owner manages firm
4. Ownership change dissolves the firm
5. Very limited access to capital (they invest their own funds and borrow from bank).
6. Personal Taxation
Partnership (2) CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS The portion of the corporation's earnings that are
distributed to its shareholders.
Profit Maximization CORRECT ANSWERS 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.
Questions And Answers Latest Update |
Updated
Finance Definition CORRECT ANSWERS the study of how people and businesses
evaluate investments and raise capital to fund them.
Three Components of Finance CORRECT ANSWERS 1. Capital Budgeting
2. Capital Structure
3. Working Capital Management
Capital Budgeting CORRECT ANSWERS What are we going to put our money into?
What investments should the firm undertake?
The decision making process used to analyze potential investments in fixed assets.
Ex: Introducing a product to a firm.
Capital Structure CORRECT ANSWERS How should the firm raise money to fund these
long term investments? The mix of long-term sources of funds used by the firm.
Ex: How to finance the development and production of a product.
Working Capital Management CORRECT ANSWERS How can the firm best manage
the cash-flows as they arise day to day? It is the management of day-to-day operations
and decisions that relate to working capital and short term financing.
Ex: How much inventory to hold in stock.
Financial Markets CORRECT ANSWERS Mechanisms that allow people to easily buy
and sell financial claims, institutions that facilitate financial transactions.
Sole Proprietorship CORRECT ANSWERS Definition: A business owned by a single
individual who is entitled to all profits and all debt (money that have been borrowed and
must be paid back.
Overview of Sole Proprietorship CORRECT ANSWERS 1. One owner
2. Liable for debt (if the business is being sued, so is the owner).
3. Owner manages firm
4. Ownership change dissolves the firm
5. Very limited access to capital (they invest their own funds and borrow from bank).
6. Personal Taxation
Partnership (2) CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS 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 CORRECT ANSWERS The portion of the corporation's earnings that are
distributed to its shareholders.
Profit Maximization CORRECT ANSWERS 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.
