MBA 501 EXAM 1 QUESTIONS &
ANSWERS(GRADED A+)
In large firms, financial activity is usually associated with which top officer? -
ANSWERChief Financial Officer
What 3 subjects is the financial manager concerned with? - ANSWERCapital
budgeting
Capital structuring
Working capital management
____ budgeting is the process of planning and managing a firm's long-term assets -
ANSWERCapital
What are the basic areas of finance? - ANSWERCorporate Finance (business
finance)
Investments
Financial Institutions
International Finance
Capital Structure - ANSWERRefers to specific mixture of long-term debt and equity
the firm uses to finance its operation
Capital Budgeting - ANSWERProcess of planning and managing a firm's long-term
investments/assets
Working Capital Management - ANSWERRefers to a firm's short-term assets
(inventory) and short-term liabilities ($ owed to suppliers)
Which positions generally report to the CFO? - ANSWERController and treasurer
Sole proprietorship - ANSWERA business owned by one person
A business without separate legal authority formed by two or more people is known
as a ____ - ANSWERpartnership
General Partnership Advantages/Disadvantages - ANSWERAdvantages:
- 2 or more owners
- more capital available
- relatively easy to start
- income taxed once as personal
Disadvantages:
- unlimited liability
- partnership dies when 1 partner dies or sells
- difficult to transfer ownership
, Limited Partnership - ANSWERone or more general partners will run the business
and have unlimited liability, but there will be one or more limited partners who do not
actively participate in the business
In a limited partnership, a limited partner's liability for business debts is ____ -
ANSWERlimited to their cash contribution to the partnership
A shareholder's liability is limited to _____ - ANSWERthe amount the shareholder
invested in the corporation
How is ownership transferred in a corporation? - ANSWERGifting or selling shares of
stock
A corporation is a distinct ___ entity and as such can have a name and take
advantage of the legal powers of natural persons - ANSWERlegal
Sole Proprietorship Advantages/Disadvantages - ANSWERAdvantages:
- easiest to start
- least regulated
- single owner keeps all profits
- taxed once as personal income
Disadvantages:
- equity capital limited
- limited to life of owner
- unlimited liability
- difficult to sell ownership
Corporation Advantages/Disadvantages - ANSWERAdvantages:
- limited liability
- unlimited life
- separation of ownership and management
- transfer of owner is easy
- easier to raise capital
Disadvantages:
- separation of ownership and management
- double taxation
Which type of partnership involves both general and limited partners to run the
business? - ANSWERLimited partnership
What are the reasons that the corporation is the most important form of business? -
ANSWERCorps can sue and be sued
Corps are separate legal entities
Corps can enter contracts
An organization must prepare ____ and bylaws when forming a corporation. -
ANSWERArticles of Incorporation
General Partnership - ANSWERa partnership in which partners share in gains or
losses, and carry unlimited liability for all partnership debts
ANSWERS(GRADED A+)
In large firms, financial activity is usually associated with which top officer? -
ANSWERChief Financial Officer
What 3 subjects is the financial manager concerned with? - ANSWERCapital
budgeting
Capital structuring
Working capital management
____ budgeting is the process of planning and managing a firm's long-term assets -
ANSWERCapital
What are the basic areas of finance? - ANSWERCorporate Finance (business
finance)
Investments
Financial Institutions
International Finance
Capital Structure - ANSWERRefers to specific mixture of long-term debt and equity
the firm uses to finance its operation
Capital Budgeting - ANSWERProcess of planning and managing a firm's long-term
investments/assets
Working Capital Management - ANSWERRefers to a firm's short-term assets
(inventory) and short-term liabilities ($ owed to suppliers)
Which positions generally report to the CFO? - ANSWERController and treasurer
Sole proprietorship - ANSWERA business owned by one person
A business without separate legal authority formed by two or more people is known
as a ____ - ANSWERpartnership
General Partnership Advantages/Disadvantages - ANSWERAdvantages:
- 2 or more owners
- more capital available
- relatively easy to start
- income taxed once as personal
Disadvantages:
- unlimited liability
- partnership dies when 1 partner dies or sells
- difficult to transfer ownership
, Limited Partnership - ANSWERone or more general partners will run the business
and have unlimited liability, but there will be one or more limited partners who do not
actively participate in the business
In a limited partnership, a limited partner's liability for business debts is ____ -
ANSWERlimited to their cash contribution to the partnership
A shareholder's liability is limited to _____ - ANSWERthe amount the shareholder
invested in the corporation
How is ownership transferred in a corporation? - ANSWERGifting or selling shares of
stock
A corporation is a distinct ___ entity and as such can have a name and take
advantage of the legal powers of natural persons - ANSWERlegal
Sole Proprietorship Advantages/Disadvantages - ANSWERAdvantages:
- easiest to start
- least regulated
- single owner keeps all profits
- taxed once as personal income
Disadvantages:
- equity capital limited
- limited to life of owner
- unlimited liability
- difficult to sell ownership
Corporation Advantages/Disadvantages - ANSWERAdvantages:
- limited liability
- unlimited life
- separation of ownership and management
- transfer of owner is easy
- easier to raise capital
Disadvantages:
- separation of ownership and management
- double taxation
Which type of partnership involves both general and limited partners to run the
business? - ANSWERLimited partnership
What are the reasons that the corporation is the most important form of business? -
ANSWERCorps can sue and be sued
Corps are separate legal entities
Corps can enter contracts
An organization must prepare ____ and bylaws when forming a corporation. -
ANSWERArticles of Incorporation
General Partnership - ANSWERa partnership in which partners share in gains or
losses, and carry unlimited liability for all partnership debts
