CHAPTER #1 INTRODUCTION TO
CORPORATE FINANCE EXAM
QUESTIONS AND ANSWERS
Corporation - ANSWER-Business form existing separate and apart for its owners
Advantages of a Corporation - ANSWER-1. Liability Limited to Investment
2. Ease in Raising Capital
3. Continues after death of owner(s)
Disadvantages of a Corporation - ANSWER-1. Tax Treatment of earnings (Double
Taxation)
2. Time and Cost of Incorporation
3. Separation of ownership and management
What is the classical goal of the firm? - ANSWER-To Maximize Shareholder Wealth
What are 3 important trends? - ANSWER-1. More accurate and dependable financial
statements (Corporate Governance Concept)
2. Globalization
3. Improving Information technology (IT)
Business ethics - ANSWER-a company's attitude and conduct toward its employees,
customers, community, and stockholder
Managerial compensation - ANSWER-- They are given the opportunities to buy stocks
for barging prices
- Better performers within the firm will tend to get promoted
- The threat of a takeover may result in better management
- Proxy rights: the authority to vote for some one else
Agency Problem - ANSWER-Conflict between Managers and Stockholders
What is the difference between a primary market and a secondary market - ANSWER-
The secondary market involves buying and selling securities between other investors,
while the primary market involves investors buying the securities from the issuing
companies. Investors and traders engage in market activity through different
exchanges, such as the New York Stock Exchange and Nasdaq.
, What is finance concerned about? - ANSWER-Decisions with money
What word is used to describe monetary decisions? - ANSWER-Cashflows
What do financial decisions deal with? - ANSWER-How money is raised and used
Everything else being equal is more or less value preferred? - ANSWER-More Value
Everything else being equal, the sooner cash is received... - ANSWER-...the more
valuable it is
Everything else being equal, less risky assets are what? - ANSWER-Preferred to riskier
assets
What are the central areas of finance? - ANSWER-- Financial Markets & Institutions
- Investments
- Financial Services
- Managerial Finance
Are all areas of business linked with finance? - ANSWER-Yes
What are the three primary forms of business ownership? - ANSWER-- Sole
Proprietorship
- Partnership
- Corporation
What are the advantages of a sole proprietorship and partnership? - ANSWER-- Ease
of formation
- Few government regulations
- No double taxation
What are the disadvantages of a sole proprietorship and a partnership? - ANSWER--
Unlimited personal liability
- Limited Lifespan
- Difficult to transfer ownership
- Harder to raise large amounts of capital
What is one advantage of a partnership over a sole proprietorship? - ANSWER-The
ability to raise more capital
What are the advantages of a corporation? - ANSWER-- Unlimited Life
- Easy transfer of ownership
- Limited liability
- Ease of raising capital (Can issue stocks and bonds)
What is considered a separate legal entity? - ANSWER-A corporation
CORPORATE FINANCE EXAM
QUESTIONS AND ANSWERS
Corporation - ANSWER-Business form existing separate and apart for its owners
Advantages of a Corporation - ANSWER-1. Liability Limited to Investment
2. Ease in Raising Capital
3. Continues after death of owner(s)
Disadvantages of a Corporation - ANSWER-1. Tax Treatment of earnings (Double
Taxation)
2. Time and Cost of Incorporation
3. Separation of ownership and management
What is the classical goal of the firm? - ANSWER-To Maximize Shareholder Wealth
What are 3 important trends? - ANSWER-1. More accurate and dependable financial
statements (Corporate Governance Concept)
2. Globalization
3. Improving Information technology (IT)
Business ethics - ANSWER-a company's attitude and conduct toward its employees,
customers, community, and stockholder
Managerial compensation - ANSWER-- They are given the opportunities to buy stocks
for barging prices
- Better performers within the firm will tend to get promoted
- The threat of a takeover may result in better management
- Proxy rights: the authority to vote for some one else
Agency Problem - ANSWER-Conflict between Managers and Stockholders
What is the difference between a primary market and a secondary market - ANSWER-
The secondary market involves buying and selling securities between other investors,
while the primary market involves investors buying the securities from the issuing
companies. Investors and traders engage in market activity through different
exchanges, such as the New York Stock Exchange and Nasdaq.
, What is finance concerned about? - ANSWER-Decisions with money
What word is used to describe monetary decisions? - ANSWER-Cashflows
What do financial decisions deal with? - ANSWER-How money is raised and used
Everything else being equal is more or less value preferred? - ANSWER-More Value
Everything else being equal, the sooner cash is received... - ANSWER-...the more
valuable it is
Everything else being equal, less risky assets are what? - ANSWER-Preferred to riskier
assets
What are the central areas of finance? - ANSWER-- Financial Markets & Institutions
- Investments
- Financial Services
- Managerial Finance
Are all areas of business linked with finance? - ANSWER-Yes
What are the three primary forms of business ownership? - ANSWER-- Sole
Proprietorship
- Partnership
- Corporation
What are the advantages of a sole proprietorship and partnership? - ANSWER-- Ease
of formation
- Few government regulations
- No double taxation
What are the disadvantages of a sole proprietorship and a partnership? - ANSWER--
Unlimited personal liability
- Limited Lifespan
- Difficult to transfer ownership
- Harder to raise large amounts of capital
What is one advantage of a partnership over a sole proprietorship? - ANSWER-The
ability to raise more capital
What are the advantages of a corporation? - ANSWER-- Unlimited Life
- Easy transfer of ownership
- Limited liability
- Ease of raising capital (Can issue stocks and bonds)
What is considered a separate legal entity? - ANSWER-A corporation
