Corporate Finance Test 1-Brune UPDATED
ACTUAL Exam Questions and CORRECT
Answers
Working Capital Management - CORRECT ANSWER - the managing of short-term assets
and liabilities
Working Capital - CORRECT ANSWER - current assets - current liabilities
Capital - CORRECT ANSWER - money for investment
CapEx - CORRECT ANSWER - capital expenditure
Capital Budgeting - CORRECT ANSWER - the process of planning and managing a firm's
long-term investments
Capital Structure - CORRECT ANSWER - the mixture of debt and equity maintained by a
firm
2 Forms of External Financing - CORRECT ANSWER - debt and equity
Accounting Equation - CORRECT ANSWER - Assets = Liabilities + Owner's Equity
Purpose of a Corporation - CORRECT ANSWER - maximize shareholder value
Agency Problem - CORRECT ANSWER - the possibility of conflict of interest between
the stockholders and management of a firm
, primary financial market - CORRECT ANSWER - where the original sale occurs
example= IPO
secondary financial market - CORRECT ANSWER - where all subsequent sales occur
example= stubhub or TRADING stock
dealer - CORRECT ANSWER - buys and sells from their own inventory (bonds)
broker - CORRECT ANSWER - connects buyers and sellers (stocks)
Sole Proprietorship - CORRECT ANSWER - Single person ownership
Advantages:simple, easy to organize
Disadvantages: unlimited liability to owner(no protection),difficult to acquire capital
Taxation: taxed at owners personal rate
Partnership - CORRECT ANSWER - two or more owners
A: share responsibility, easy to organize
D: unlimited liability to owners, difficult to acquire capital
Taxation: taxed at owners personal rates
Corporation - CORRECT ANSWER - Separate legal entity governed by Board of
Directors and owned by investors
A: easier access to capital, limited liability (investor losses are limited to initial investment)
D: double taxation (at corporate and shareholder level)
Taxation: earnings taxed at corporate rate,dividends taxable to investors
S Corporation - CORRECT ANSWER - Hybrid of corporation and partnership
A: NO double taxation, limited liability for shareholders
ACTUAL Exam Questions and CORRECT
Answers
Working Capital Management - CORRECT ANSWER - the managing of short-term assets
and liabilities
Working Capital - CORRECT ANSWER - current assets - current liabilities
Capital - CORRECT ANSWER - money for investment
CapEx - CORRECT ANSWER - capital expenditure
Capital Budgeting - CORRECT ANSWER - the process of planning and managing a firm's
long-term investments
Capital Structure - CORRECT ANSWER - the mixture of debt and equity maintained by a
firm
2 Forms of External Financing - CORRECT ANSWER - debt and equity
Accounting Equation - CORRECT ANSWER - Assets = Liabilities + Owner's Equity
Purpose of a Corporation - CORRECT ANSWER - maximize shareholder value
Agency Problem - CORRECT ANSWER - the possibility of conflict of interest between
the stockholders and management of a firm
, primary financial market - CORRECT ANSWER - where the original sale occurs
example= IPO
secondary financial market - CORRECT ANSWER - where all subsequent sales occur
example= stubhub or TRADING stock
dealer - CORRECT ANSWER - buys and sells from their own inventory (bonds)
broker - CORRECT ANSWER - connects buyers and sellers (stocks)
Sole Proprietorship - CORRECT ANSWER - Single person ownership
Advantages:simple, easy to organize
Disadvantages: unlimited liability to owner(no protection),difficult to acquire capital
Taxation: taxed at owners personal rate
Partnership - CORRECT ANSWER - two or more owners
A: share responsibility, easy to organize
D: unlimited liability to owners, difficult to acquire capital
Taxation: taxed at owners personal rates
Corporation - CORRECT ANSWER - Separate legal entity governed by Board of
Directors and owned by investors
A: easier access to capital, limited liability (investor losses are limited to initial investment)
D: double taxation (at corporate and shareholder level)
Taxation: earnings taxed at corporate rate,dividends taxable to investors
S Corporation - CORRECT ANSWER - Hybrid of corporation and partnership
A: NO double taxation, limited liability for shareholders
