FINC 322 EXAM CH 1 & 3 STUDY TEST
WITH ANSWERS
What are the four basic areas of finance? - CORRECT
ANSWER-Corporate business
Investments
Financial Institutions
International finance
What are some important questions to be answered using
finance? - CORRECT ANSWER-What long-term investment...
What are the four basic areas of finance? - CORRECT
ANSWER-Corporate business
Investments
Financial Institutions
International finance
What are some important questions to be answered using
finance? - CORRECT ANSWER-What long-term investments
should the firm take? (Capital budgeting)
Where will we get the long-term financing to pay for the
investments? (Capital Structure)
How will we manage the everyday financial activities of the
firm? (Working Capital Management)
What is corporate finance? - CORRECT ANSWER-Business
Finance
What are the three major forms of business organizations? -
CORRECT ANSWER-Sole Proprietorship- Owned by one
person
Partnership- Two or more owners
Corporation- Business is a separate entity owned by one or
more individuals
, What are the advantages and disadvantages of Sole
Proprietorship? - CORRECT ANSWER-Most common form of
business
Advantages: simple to start-up, least regulated, owner gets to
keep the profits, taxed once
Disadvantages: unlimited liability (no distinction between
personal and business income), business income is taxed as
personal income, limited to the owner's personal wealth, limited
life-span
What are the advantages and disadvantages of Partnerships? -
CORRECT ANSWER-Advantages: Easy and inexpensive to
start, owners get to keep the profits, more capital available
Disadvantages: unlimited liability, limited life of business,
difficulty transferring owners
What are the advantages and disadvantages of Corporations? -
CORRECT ANSWER-Both: Separate entities
Advantages: separate entity, ownership can be transferred
easily, limited liability, life of a corporation is not limited,
Disadvantages: Double taxed
Advantages of LLC? - CORRECT ANSWER-LLC goal is to
operate and be taxed like a partnership, but retain a limited
liability for owners (hybrid of a partnership and a corporation)
Advantages: Separate entity, taxed once
What is double taxation? - CORRECT ANSWER-Profits for
corporations are taxed twice: at the corporate level when they
are earned and again at the personal level when they are paid
out.
Why 'separation of management and ownership' shows up in
both advantages and disadvantages of a corporation? -
CORRECT ANSWER-It is an advantage in case the company
files bankruptcy, or if the company gets sued, etc
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