Corprate Finance Exam 1

What are the major areas in finance

- Corporate finance - Investments - Financial institutions - International finance

Advantages for a corportaion

- Easy ownership transfer - Life is unlimited - Limited liability for stock holders

Disadvantages of Sole Proprietorship

- Owner has unlimited liability - Taxed as personal income - Limited to owners life span

Advantages of a sole proprietorship

-Easy to start - Least Regulated - Owner keeps all profits

Sarbenes-Oxley Act

-Intended to protect investors from corporate abuse -Enacted in 2002

What 3 aspects should financial managers be concerned about?

1. Capital budgeting- Long-term investment 2. Capital structure- debt and equity 3. Working capital management- short term assets and liabilities

What are 3 forms of business organizations?

1. Sole proprietorship 2. Partnership 3. Corporation

Agency Problem

Conflicts that can arise between managers and owners

capital budeting

Long-term investments

Role of CFO

Oversees the Treasurer and Controller and is responsible for all financial functions of a company

Which one of the following questions involves a capital budgeting decision? a. How many shares of stock should the firm issue? b. Should the firm purchase a new machine for the production line? c. Should the firm borrow money to acquire new equipment? d. How much inventory should the firm keep on hand? e. How much money should be kept in the checking account?

b. Should the firm purchase new equipment for the production line?

A firm owned by a single person who has unlimited liability for the firm's debt is called a: a. corporation. b. sole proprietorship. c. general partnership. d. limited partnership. e. limited liability company.

b. Sole Proprietorship

Which one of the following questions involves a capital structure decision? a. Which one of two project proposals should the firm implement? b. How should the firm allocate its limited available funds among acceptable projects? c. How much funding should be allocated to financing customer purchases of a new product? d. How much debt should the firm incur to fund a project? e. How much inventory will be needed to support a project?

d. How much debt should the firm incur to fund a project?

Capital-Structure

debt and equity

Disadvantages of a corporation

double taxation

Role of CEO

fund development, strategy and planning, financial oversight and public relations

goal of financial manager

maximize the current value per share of the existing stock

Working Capital Management

short term assets and liabilities