Fundamentals of corporate finance
with questions and well verified
answers actual exam!!! 2026
capex decisions - ANSWER -capital expenditure decision:decisions to invest in
tangible/intangible assets
financing decisions - ANSWER -concerned with the ways in which firms obtain and
manage long term financing to acquire and support their productive assets(finance or pay for
assets)
-the form and amount of financing a firm's investment, how to get $ in the door, should I issue
debt or isssue equity?
real assets - ANSWER -Assets used to produce goods and services, not financial
asset - ANSWER -future benefit
economic resource
future economic value will produce profit/value in the future
financial asset - ANSWER -financial claims to income generated by real assets
-bonds
,corporation - ANSWER -A business owned by stockholders who share in its profits but
are not personally responsible for its debts
-organized as a seperate legal identity owned by stockholders
"a nexus of contracts"
A distinct legal entity, owned by shareholders
Organized under 'articles of incorporation'
Limited liability - shareholders not personally responsible for debts of corporation
May be 'private' or 'public' (latter has shares issued and trading on exchanges)
May be 'closely held,' or widely dispersed shareholders
Shareholders elect a board of directors, who appoint and monitor managers
"Separation of ownership and control" - shareholders defer to board, managers
Managers may quit, or be replaced, and corporation continues
Downside? "Agency costs"
Berle and Means, The Modern Corporation and Private Property
Two other downsides
Expensive legal/compliance machinery
"Double taxation" - corporate income taxed, and so are dividends and capital gains for
shareholders
, llimited liability - ANSWER -the owners of a corp are not personally liable for obligations
of the corp- but can still be sued for personal decisions
capex - ANSWER -Capital Expenditure-land,property, equip, long term real assets
free cash flow - ANSWER -Cash available once the firm has covered it's capital
expenditures
cfo - ANSWER -chief financial officer-leader, the most important
leads financial decisions and execution
oversees offices of treasurer, controller
Oversees whole financial staff
Close contact with CEO, other senior execs
Key external voice for corporation
treasurer - ANSWER -responsible for financing, cash management, and relationshp with
banks and other instit. internal/external manage.
controller - ANSWER -internal statements- responsible for budgeting, taxes, and
accounting
oppurtunity cost of capital - ANSWER -minimum acceptable rate of return on capital
investment- the rate of return that investions could earn in finance. markets, look at proj. of
similar risk, return
agency problems - ANSWER -managers are agents for shareholders, but the managers
may act in their own interest
stakeholder - ANSWER -anyone with a financial interest in the firm
financial market - ANSWER -market where securities are issued and traded
with questions and well verified
answers actual exam!!! 2026
capex decisions - ANSWER -capital expenditure decision:decisions to invest in
tangible/intangible assets
financing decisions - ANSWER -concerned with the ways in which firms obtain and
manage long term financing to acquire and support their productive assets(finance or pay for
assets)
-the form and amount of financing a firm's investment, how to get $ in the door, should I issue
debt or isssue equity?
real assets - ANSWER -Assets used to produce goods and services, not financial
asset - ANSWER -future benefit
economic resource
future economic value will produce profit/value in the future
financial asset - ANSWER -financial claims to income generated by real assets
-bonds
,corporation - ANSWER -A business owned by stockholders who share in its profits but
are not personally responsible for its debts
-organized as a seperate legal identity owned by stockholders
"a nexus of contracts"
A distinct legal entity, owned by shareholders
Organized under 'articles of incorporation'
Limited liability - shareholders not personally responsible for debts of corporation
May be 'private' or 'public' (latter has shares issued and trading on exchanges)
May be 'closely held,' or widely dispersed shareholders
Shareholders elect a board of directors, who appoint and monitor managers
"Separation of ownership and control" - shareholders defer to board, managers
Managers may quit, or be replaced, and corporation continues
Downside? "Agency costs"
Berle and Means, The Modern Corporation and Private Property
Two other downsides
Expensive legal/compliance machinery
"Double taxation" - corporate income taxed, and so are dividends and capital gains for
shareholders
, llimited liability - ANSWER -the owners of a corp are not personally liable for obligations
of the corp- but can still be sued for personal decisions
capex - ANSWER -Capital Expenditure-land,property, equip, long term real assets
free cash flow - ANSWER -Cash available once the firm has covered it's capital
expenditures
cfo - ANSWER -chief financial officer-leader, the most important
leads financial decisions and execution
oversees offices of treasurer, controller
Oversees whole financial staff
Close contact with CEO, other senior execs
Key external voice for corporation
treasurer - ANSWER -responsible for financing, cash management, and relationshp with
banks and other instit. internal/external manage.
controller - ANSWER -internal statements- responsible for budgeting, taxes, and
accounting
oppurtunity cost of capital - ANSWER -minimum acceptable rate of return on capital
investment- the rate of return that investions could earn in finance. markets, look at proj. of
similar risk, return
agency problems - ANSWER -managers are agents for shareholders, but the managers
may act in their own interest
stakeholder - ANSWER -anyone with a financial interest in the firm
financial market - ANSWER -market where securities are issued and traded
