FINA 3313 EXAM 1 QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) ALREADY GRADED A+
S Corporation Ans✓✓✓tax-reporting entity that allows certain
corporations with 100 or fewer stockholders to choose to be taxed as
partnerships
Limited Liability Company (LLC) Ans✓✓✓gives its owners limited
liability and taxation as a partnership. Unlike S corp, it can own more
than 80% of another corporation
Limited Liability Partnership (LLP) Ans✓✓✓partners are liable for their
own acts of malpractice, but not for those of other partners
Goal of the Firm Ans✓✓✓maximize shareholder wealth/value
Three Reasons Why Profit Maximization Doesn't Lead to Highest Share
Price Ans✓✓✓timing; profits and cash flows are NOT identical; risk
matters A LOT
Investing in Cash Surpluses Ans✓✓✓put funds in savings account or
invest in marketable securities; repay lenders and owners; replace aging
assets; and invest in the company
Funding Cash Deficits Ans✓✓✓take cash from savings; get
unsecured/secured loans; get cash from other sources such as
commercial paper
, Earning per Share (EPS) Ans✓✓✓how corporations measure profits;
represents the amount earned during the period on behalf of each
outstanding share of CS;
Key Determinants of Share Price Ans✓✓✓risk and return
Risk Averse Ans✓✓✓stockholders will only bear risk if they expect
compensation for doing so
Stakeholders Ans✓✓✓employees, customers, suppliers, creditors,
owners, and others who have economic link to the firm
Marginal Cost-Benefit Analysis Ans✓✓✓the principle that financial
decisions should be made and actions taken only when the added
benefits exceed added costs
Primary Activities of the Financial Manager Ans✓✓✓investment
decisions and financing decisions (investment decisions are related to
items on left side of balance sheet and financing decisions relate to items
on the right)
Individual Investors Ans✓✓✓own few shares and don't have means to
influence firm's corporate governance
ANSWERS (VERIFIED ANSWERS) ALREADY GRADED A+
S Corporation Ans✓✓✓tax-reporting entity that allows certain
corporations with 100 or fewer stockholders to choose to be taxed as
partnerships
Limited Liability Company (LLC) Ans✓✓✓gives its owners limited
liability and taxation as a partnership. Unlike S corp, it can own more
than 80% of another corporation
Limited Liability Partnership (LLP) Ans✓✓✓partners are liable for their
own acts of malpractice, but not for those of other partners
Goal of the Firm Ans✓✓✓maximize shareholder wealth/value
Three Reasons Why Profit Maximization Doesn't Lead to Highest Share
Price Ans✓✓✓timing; profits and cash flows are NOT identical; risk
matters A LOT
Investing in Cash Surpluses Ans✓✓✓put funds in savings account or
invest in marketable securities; repay lenders and owners; replace aging
assets; and invest in the company
Funding Cash Deficits Ans✓✓✓take cash from savings; get
unsecured/secured loans; get cash from other sources such as
commercial paper
, Earning per Share (EPS) Ans✓✓✓how corporations measure profits;
represents the amount earned during the period on behalf of each
outstanding share of CS;
Key Determinants of Share Price Ans✓✓✓risk and return
Risk Averse Ans✓✓✓stockholders will only bear risk if they expect
compensation for doing so
Stakeholders Ans✓✓✓employees, customers, suppliers, creditors,
owners, and others who have economic link to the firm
Marginal Cost-Benefit Analysis Ans✓✓✓the principle that financial
decisions should be made and actions taken only when the added
benefits exceed added costs
Primary Activities of the Financial Manager Ans✓✓✓investment
decisions and financing decisions (investment decisions are related to
items on left side of balance sheet and financing decisions relate to items
on the right)
Individual Investors Ans✓✓✓own few shares and don't have means to
influence firm's corporate governance
