Financial Management Theory & Practice Questions with Answers (100% Correct Answers)

Financial Management Theory & Practice
Questions with Answers (100% Correct
Answers)
Objective of the Firm Answer: Maximize Wealth

Finance Skills for Managers Answer: Identify and select the corporate strategies
and individual projects that add value to their firm.



Forecast the funding requirements of their company, and devise strategies for
acquiring those funds.

Types of Businesses Answer: Sole proprietorship

Partnership

Corporation

Advantages of a Proprietorship Answer: Ease of formation

Subject to few regulations

No corporate income taxes

Disadvantages of a Proprietorship Answer: Limited life

Unlimited liability

Difficult to raise capital to support growth

Partnership Answer: A partnership has roughly the same advantages and
disadvantages as a sole proprietorship

Corporation Answer: A corporation is a legal entity separate from its owners
and managers.

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File papers of incorporation with state.

Charter

Bylaws

Advantages of a Corporation Answer: Unlimited life

Easy transfer of ownership

Limited liability

Ease of raising capital

Disadvantages of a Corporation Answer: Double taxation

Cost of set-up and report filing

Public Corporation Answer: Initial Public Offering (IPO) of Stock



Subsequent issues of debt and equity

Initial Public Offering (IPO) Answer: Raises cash



Allows founders and pre-IPO investors to "harvest" some of their wealth

Agency Problem Answer: Managers may act in their own interests and not on
behalf of owners (stockholders)

Corporate Governance Answer: The set of rules that control a company's
behavior towards its directors, managers, employees, shareholders, creditors,
customers, competitors, and community.