FIN (3601) Corporate Finance Exam 1
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Agency Problem - CORRECT ANSWER - Which one of the following terms is defined as
a conflict of interest between the corporate shareholders and the corporate managers?
Capital budgeting - CORRECT ANSWER - Which one of the following terms is defined
as the management of a firm's long-term investments?
The owner of a sole proprietorship is personally responsible for all of the company's debts -
CORRECT ANSWER - Which one of the following statements concerning a sole
proprietorship is correct?
Establishing the preferred debt-equity level. - CORRECT ANSWER - Which one of the
following is a capital structure decision?
Increasing current profits when doing so lowers the value of the firm's equity. - CORRECT
ANSWER - Which one of the following actions by a financial manager is most apt to
create an agency problem?
Corporation - CORRECT ANSWER - Which type of business organization has all the
respective rights and privileges of a legal person?
Working capital - CORRECT ANSWER - The short-run, day-to-day financial operations
of a firm are primarily controlled by managing the:
General partnership - CORRECT ANSWER - A business formed by two or more
individuals who each have unlimited liability for all of the firm's business debts is called a:
, Maximize the current market value per share. - CORRECT ANSWER - Which one of the
following best states the primary goal of financial management?
118.59 - CORRECT ANSWER - 3M Company's current price is $198.65 per share.
Assuming that 3M currently has 597,000,000 shares outstanding, its current market cap is:
I, II, III, and IV. - CORRECT ANSWER - Maria is the sole proprietor of an antique store
that she has operated at the same location for the past 16 years. The store rents the space in
which it is located but does own all of the inventory and fixtures. The store has an outstanding
loan with the local bank but no other debt obligations. There are no specific loan covenants or
assets pledged as security for the loan. Due to a sudden and unexpected downturn in the
economy, the store is unable to generate sufficient funds to pay the loan payments due to the
bank. Which of the following options does the bank have to collect the money it is owed?
I. Sell the inventory and use the cash raised to apply to the debt
II. Sell the store fixtures and use the cash raised to apply to the debt
III. Take funds from Maria's personal account at the bank to pay the store's debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
Determining whether to pay cash for a purchase or use the credit offered by the supplier. -
CORRECT ANSWER - Which one of the following is a working capital management
decision?
the size; the cut - CORRECT ANSWER - In class, we learned that the capital budgeting
decisions of managers determine ___________ of the "pie", while capital structure decisions
determine __________ of the "pie".
have limited liability - CORRECT ANSWER - Corporate shareholders:
Compensating managers with shares of stock that must be held for three years before the shares
can be sold - CORRECT ANSWER - Which one of the following is most apt to align
management's priorities with shareholders' interests?
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Agency Problem - CORRECT ANSWER - Which one of the following terms is defined as
a conflict of interest between the corporate shareholders and the corporate managers?
Capital budgeting - CORRECT ANSWER - Which one of the following terms is defined
as the management of a firm's long-term investments?
The owner of a sole proprietorship is personally responsible for all of the company's debts -
CORRECT ANSWER - Which one of the following statements concerning a sole
proprietorship is correct?
Establishing the preferred debt-equity level. - CORRECT ANSWER - Which one of the
following is a capital structure decision?
Increasing current profits when doing so lowers the value of the firm's equity. - CORRECT
ANSWER - Which one of the following actions by a financial manager is most apt to
create an agency problem?
Corporation - CORRECT ANSWER - Which type of business organization has all the
respective rights and privileges of a legal person?
Working capital - CORRECT ANSWER - The short-run, day-to-day financial operations
of a firm are primarily controlled by managing the:
General partnership - CORRECT ANSWER - A business formed by two or more
individuals who each have unlimited liability for all of the firm's business debts is called a:
, Maximize the current market value per share. - CORRECT ANSWER - Which one of the
following best states the primary goal of financial management?
118.59 - CORRECT ANSWER - 3M Company's current price is $198.65 per share.
Assuming that 3M currently has 597,000,000 shares outstanding, its current market cap is:
I, II, III, and IV. - CORRECT ANSWER - Maria is the sole proprietor of an antique store
that she has operated at the same location for the past 16 years. The store rents the space in
which it is located but does own all of the inventory and fixtures. The store has an outstanding
loan with the local bank but no other debt obligations. There are no specific loan covenants or
assets pledged as security for the loan. Due to a sudden and unexpected downturn in the
economy, the store is unable to generate sufficient funds to pay the loan payments due to the
bank. Which of the following options does the bank have to collect the money it is owed?
I. Sell the inventory and use the cash raised to apply to the debt
II. Sell the store fixtures and use the cash raised to apply to the debt
III. Take funds from Maria's personal account at the bank to pay the store's debt
IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt
Determining whether to pay cash for a purchase or use the credit offered by the supplier. -
CORRECT ANSWER - Which one of the following is a working capital management
decision?
the size; the cut - CORRECT ANSWER - In class, we learned that the capital budgeting
decisions of managers determine ___________ of the "pie", while capital structure decisions
determine __________ of the "pie".
have limited liability - CORRECT ANSWER - Corporate shareholders:
Compensating managers with shares of stock that must be held for three years before the shares
can be sold - CORRECT ANSWER - Which one of the following is most apt to align
management's priorities with shareholders' interests?
