COB 300 Finance Exam 1 Liu questions well answered to pass A GUARANTEED

COB 300 Finance Exam 1 Liu questions well answered to pass | Top-Rated Study Answers Primary goal of a business - answer - Increase/maximize the value of the firm (shareholder wealth). Three major forms of business organization - answer - Sole proprietorship, partnership, corporation. Sole proprietorship main advantages - answer - Easy to start, least regulated, owner keeps profits, personal income tax. Sole proprietorship main disadvantages - answer - Unlimited personal liability, limited life, hard to raise capital, hard to transfer. Partnership main advantages - answer - Relatively easy to form, more capital available, taxed at owner level. Partnership main disadvantages - answer - Unlimited liability generally, limited life, difficult ownership transfer. Corporation main advantages - answer - Limited liability, unlimited life, easy ownership transfer, easier capital raising. Corporation main disadvantage - answer - Double taxation for C corporations (corporate income tax and dividend tax). Tax advantage of partnerships and proprietorships - answer - Income is passed through and taxed at owner level, avoiding double taxation. S corporation definition - answer - Corporation with pass-through taxation and limited liability (max 100 shareholders). LLC definition - answer - Hybrid business structure offering limited liability with pass-through taxation. Stakeholder definition - answer - Anyone affected by company decisions (shareholders, creditors, employees, suppliers, customers). Intrinsic value - answer - A stock's true long-run value, based on expected cash flows and risk. Market price - answer - The price investors are currently willing to pay for a stock. Market equilibrium condition - answer - Market price equals intrinsic value. Can market price differ from intrinsic value? - answer - Yes, especially in the short run; intrinsic value is long-run. Agency relationship definition - answer - Principal hires an agent to act on their behalf (shareholders are principals). Agency problem definition - answer - Conflict of interest between shareholders (principals) and managers (agents). Methods to reduce agency problems - answer - Managerial compensation/incentives, shareholder intervention, and takeover threats. Stockholder vs. Bondholder relationship - answer - Stockholder is an owner; bondholder is a creditor/lender. Risk preference: Stockholders vs. Bondholders - answer - Stockholders prefer riskier projects due to upside potential. Why bondholders prefer less risk - answer - Payments are fixed, so extra risk adds upside to stockholders only. How bondholders protect themselves - answer - Covenants restricting additional debt or specific managerial actions. Market capitalization formula concept - answer - Shares Outstanding multiplied by Market Price per Share. Sarbanes-Oxley Act requirement - answer - CEO and CFO must certify accuracy of firm financial statements. Financial significance of business ethics - answer - Affects reputation, profitability, risk, and long-term firm value. Capital allocation process concept - answer - Flow of capital from suppliers/savers to users/borrowers needing funds. Three ways capital is transferred - answer - Direct transfers, investment banks, financial intermediaries. Market definition - answer - A venue where goods and services are exchanged. Financial market definition - answer - Market bringing together people needing funds with those having surplus funds. Importance of financial markets - answer - Moves capital efficiently, provides saver returns, funds projects, promotes growth. Physical asset market definition - answer - Market for tangible assets like real estate, wheat, automobiles, machinery. Financial asset market definition - answer - Market for financial claims such as stocks, bonds, notes, mortgages. Spot market definition - answer - Market where assets are bought/sold immediately