FINA 3770 Exam 1 Questions and Answers Latest Update 2025-2026
Incremental cash flow - Answers The Difference between the cashflows a company will produce
with and without the investment it is thinking about making
Opportunity cost - Answers Cost of the next best alternative use of money, time, or resources
when one choice is made rather than another
Efficient market - Answers The theory that asset prices reflect all publicly available information
about the value of the asset
Agency problem - Answers Conflict of interest between principal and agent
Capital budgeting - Answers The process a firm uses to evaluate long-term investment
proposals
Capital structure decision - Answers the decision-making process with funding choices and the
mix of long-term sources of funds
Working capital management - Answers Management of day to day operation and decisions
related to working capital and short term financing.
Financial market - Answers Financial institutions through which savers can directly provide
funds to borrowers
Sole proprietorship - Answers A business owned by one person
Partnership - Answers A business in which two or more persons combine their assets and skills
General partnership - Answers A partnership in which all owners share in operating the business
and in assuming liability for the business's debts.
Limited partnership - Answers -Must have one or more general partners and one or more limited
partner
Corporation - Answers A business owned by stockholders who share in its profits but are not
personally responsible for its debts
S corporation - Answers A unique government creation that looks like a corporation but is taxed
like sole proprietorships and partnerships
Limited liability company - Answers A business organization in which the business (not the
owner) is liable for the company's debts
Capital markets - Answers Markets that trade debt (bonds) and equity (stock) instruments with
maturities of more than one year
Angel investor - Answers individuals who invest in start-up companies with high growth
, potential in exchange for a share of ownership
Venture capalist - Answers An investment firm that provides money for startup
Public offering - Answers A primary market issue in which new securities are offered to any
investors who are willing and able to purchase them
Private placement - Answers A primary market issue that is negotiated between the issuing
corporation and a small group of accredited investors
Primary market - Answers Market for selling financial assets that can only be redeemed by the
original holder
Spot market - Answers A market in which a transaction is made immediately at the prevailing
price
Futures market - Answers markets where you can buy or sell something at a future date
Organized security exchange - Answers formal organizations that facilitate the trading of
securities
Over the counter markets - Answers exchange that provides a means to trade stocks not listed
on the national exchanges
Investment banker - Answers a financial specialist who underwrites and distributes new
securities and advises corporate clients about raising new funds
Underwriting - Answers An arrangement under which an investment banker agrees to purchase
all shares of a public offering at an agreed upon price
Underwriter's spread - Answers the difference between the price the corporation raising money
gets and the public offering price of a security
Syndicate - Answers A gathering of people with a common interest
Privileged subscription - Answers the process of marketing a new security issue to a select
group of investors
Dutch auction - Answers a method of issuing securities (common stock) where investors place
bids indication how many shares they are willing to buy and at what price. the price the stock is
then sold for becomes the lowest price at which the issuing company can sell all the available
shares
Direct sale - Answers the sale of securities by a corporation to the investing public without the
services of an investment banking firm
Reduced costs - Answers The costs benefits of having satisfied customers is found in multiple
Incremental cash flow - Answers The Difference between the cashflows a company will produce
with and without the investment it is thinking about making
Opportunity cost - Answers Cost of the next best alternative use of money, time, or resources
when one choice is made rather than another
Efficient market - Answers The theory that asset prices reflect all publicly available information
about the value of the asset
Agency problem - Answers Conflict of interest between principal and agent
Capital budgeting - Answers The process a firm uses to evaluate long-term investment
proposals
Capital structure decision - Answers the decision-making process with funding choices and the
mix of long-term sources of funds
Working capital management - Answers Management of day to day operation and decisions
related to working capital and short term financing.
Financial market - Answers Financial institutions through which savers can directly provide
funds to borrowers
Sole proprietorship - Answers A business owned by one person
Partnership - Answers A business in which two or more persons combine their assets and skills
General partnership - Answers A partnership in which all owners share in operating the business
and in assuming liability for the business's debts.
Limited partnership - Answers -Must have one or more general partners and one or more limited
partner
Corporation - Answers A business owned by stockholders who share in its profits but are not
personally responsible for its debts
S corporation - Answers A unique government creation that looks like a corporation but is taxed
like sole proprietorships and partnerships
Limited liability company - Answers A business organization in which the business (not the
owner) is liable for the company's debts
Capital markets - Answers Markets that trade debt (bonds) and equity (stock) instruments with
maturities of more than one year
Angel investor - Answers individuals who invest in start-up companies with high growth
, potential in exchange for a share of ownership
Venture capalist - Answers An investment firm that provides money for startup
Public offering - Answers A primary market issue in which new securities are offered to any
investors who are willing and able to purchase them
Private placement - Answers A primary market issue that is negotiated between the issuing
corporation and a small group of accredited investors
Primary market - Answers Market for selling financial assets that can only be redeemed by the
original holder
Spot market - Answers A market in which a transaction is made immediately at the prevailing
price
Futures market - Answers markets where you can buy or sell something at a future date
Organized security exchange - Answers formal organizations that facilitate the trading of
securities
Over the counter markets - Answers exchange that provides a means to trade stocks not listed
on the national exchanges
Investment banker - Answers a financial specialist who underwrites and distributes new
securities and advises corporate clients about raising new funds
Underwriting - Answers An arrangement under which an investment banker agrees to purchase
all shares of a public offering at an agreed upon price
Underwriter's spread - Answers the difference between the price the corporation raising money
gets and the public offering price of a security
Syndicate - Answers A gathering of people with a common interest
Privileged subscription - Answers the process of marketing a new security issue to a select
group of investors
Dutch auction - Answers a method of issuing securities (common stock) where investors place
bids indication how many shares they are willing to buy and at what price. the price the stock is
then sold for becomes the lowest price at which the issuing company can sell all the available
shares
Direct sale - Answers the sale of securities by a corporation to the investing public without the
services of an investment banking firm
Reduced costs - Answers The costs benefits of having satisfied customers is found in multiple
