FINA 3000 Pope Exam 1 questions and solutions

FINA 3000 Pope Exam 1 questions and solutions

money and banking - answersbank acts as financial intermediary to facilitate transactions between two
ji ji ji ji ji ji ji ji ji ji ji ji ji




parties
ji




local bank - answerseconomic engine for growth via loans for small businesses which help to create jobs
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




- mortgages, commercial lending, etc
ji ji ji ji




national bank - answersFederal Reserve System to adjust money supply and interest rates ji ji ji ji ji ji ji ji ji ji ji ji




-investment banking to bring firms together ji ji ji ji ji




- private equity to handle investments
ji ji ji ji ji




investments - answersvaluing and managing assets ji ji ji ji ji




- micro to macro situations
ji ji ji ji




- investment banking to
ji ji ji




financial management - answersfinance component of a firm ji ji ji ji ji ji ji




- goals to find projects that will add value to it owners while financing them in the most cost effective way
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




possible
ji




typical issues facing a financial manager - answerswhat projects should firms invest in?
ji ji ji ji ji ji ji ji ji ji ji ji




how do we cheaply finance the project? ji ji ji ji ji ji




everyday finance decisions ji ji




maximization of wealth - answersthe creation of as much wealth as possible with the available resources ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




- not all firms maximize wealth
ji ji ji ji ji




What firms do not maximize wealth? - answersnon-profits ji ji ji ji ji ji ji




sometimes firms are inefficient ji ji ji




time value of money - answersopportunity cost of tying up funds in projects, stocks, or other assets
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




- allows to price for the future today
ji ji ji ji ji ji ji




"a dollar today is worth more than a dollar tomorrow"
ji ji ji ji ji ji ji ji ji




opportunity cost - answerscost consumption over time ji ji ji ji ji ji




- we can't use money that's in stock
ji ji ji ji ji ji ji




expected return vs risk trade off - answersgreater risk should be rewarded with higher return ji ji ji ji ji ji ji ji ji ji ji ji ji ji




risk - answerschance an outcome is different than expected
ji ji ji ji ji ji ji ji




leverage - answershow much debt a firm issues for its projects ji ji ji ji ji ji ji ji ji ji




% of debt used to finance the firm
ji ji ji ji ji ji ji




↑ % of debt = ↑ required int pmts = ↑ risk = ↓ # of shareholders
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji

, why would a stockholder be concerned about leverage - answers↑ % of debt = ↑ required int pmts = ↑ risk = ↓ # of
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




shareholders = ↑ return
ji ji ji ji




less shareholders due to high leverage means that they have a greater return
ji ji ji ji ji ji ji ji ji ji ji ji




- point of private equity
ji ji ji ji




diversification - answersremoving risk from a portfolio of stocks or other investments ji ji ji ji ji ji ji ji ji ji ji




- invest in multiple assets to reduce the overall average risk
ji ji ji ji ji ji ji ji ji ji




Enron Pensions and Stock - answersEmployee pensions were 100% Enron Stock, so they weren't
ji ji ji ji ji ji ji ji ji ji ji ji ji




diversified enough when Enron went under for mismanaging money. They lost all of their savings
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




3 basic forms of business organizations - answerssole proprietorship
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partnership
corporation

what % of businesses in the US are sole proprietorship? - answers80%
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what % of all business is conducted by corporations? - answers90%
ji ji ji ji ji ji ji ji ji ji




sole proprietorship - answersunincorporated business owned by one individual
ji ji ji ji ji ji ji ji




pros of sole proprietorship - answersown boss
ji ji ji ji ji ji




single taxation ji




less regulated ji




cons of sole proprietorship - answersunlimited liability
ji ji ji ji ji ji




difficult to raise capital ji ji ji




hard to transfer ownership ji ji ji




partership - answers2+ people associated to conduct a non-corporate ji ji ji ji ji ji ji ji




- two forms
ji ji




pros of partnerships - answerssingle taxation
ji ji ji ji ji




group makes decisions ji ji




cons of partnerships - answerspotential unlimited liability
ji ji ji ji ji ji




difficult to raise capital ji ji ji




hard to transfer ownership ji ji ji




potential partnership issues ji ji




limited partnership - answersform of partnership where one or more partners are not active in the daily
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




running of the business, and whose liability for the partnership's debt is restricted to the amount invested in the
ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji ji




business
ji




- less risk and mainly decision making
ji ji ji ji ji ji




general partnership - answerspartnership in which partners share equally in both responsibility and liability
ji ji ji ji ji ji ji ji ji ji ji ji ji




Example of Partnership Issues - answersAtlanta Spirit Group bought the ATL Thrashers and Hawks ji ji ji ji ji ji ji ji ji ji ji ji ji




- there was disagreement on signing a free agent
ji ji ji ji ji ji ji ji




- this spiraled to court where they had to sell the team
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