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LSUS FIN 701 MODULE 1 EXAM QUESTIONS WITH CORRECT ANSWERS
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Why do we study finance? - Answer-- Managers need to understand the financial health of their firms - Departmental budget management - Need to be able to make the financial argument for the funding of your projects What are the 3 key financial decisions for a firm? - Answer-capital budgeting, ...

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  • August 23, 2024
  • 7
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • lsus fin 701 module 1 exam questions with correct
  • why do we study finance answer managers need

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LSUS FIN 701 MODULE 1 EXAM
QUESTIONS WITH CORRECT ANSWERS
Why do we study finance? - Answer-- Managers need to understand the financial health
of their firms
- Departmental budget management
- Need to be able to make the financial argument for the funding of your projects

What are the 3 key financial decisions for a firm? - Answer-capital budgeting, capital
structure, working capital

What long-term investments should the firm take on? - Answer-capital budgeting

Where will we get the long-term financing to pay for the investment? - Answer-capital
structure

How will we manage the everyday financial activities of the firm? - Answer-working
capital

Chief financial officer (CFO) - Answer-The top financial manager within a firm

The controller - Answer-handles cost and financial accounting, tax payments, and
management information systems

The treasurer - Answer-Handles cash management, financial planning, and capital
expenditures

capital budgeting - Answer-the process of planning and managing a firm's long-term
investments

What are the key concerns of future cash flows - Answer-size, timing and riskiness

Capital Structure - Answer-the mixture of debt and equity maintained by a firm

Working Capital Management - Answer-the managing of short-term assets and liabilities

Sole Proprietorship - Answer-a business owned and managed by a single individual

Benefits of Sole Proprietorship - Answer-- Ease of startup no special forms
- Lower regulations
- Single owner keeps all the profits
- Taxed onceas personal income

, drawbacks of sole proprietorship - Answer-- Limited life- when owner dies, the firm dies
or is sold
- Limited equity capital- this is limited to the funds available to the individual
- Unlimited liability- in firm bankruptcy, the owner is liable for all debts of the firm. Losing
one's house and savings is a possibility
- Low liquidity- it is harder to get funding or bank loans for a sole proprietorship

Partnership - Answer-a business owned by two or more people

Benefits of a Partnership - Answer-- More equity capital than is available to a sole
proprietorship
- Relatively easy to start(although written agreements are essential)
- Income taxed once at personal tax rate

Drawbacks of a Partnership - Answer-- Unlimited liability for general partners
- Dissolution of partnership when one partner dies or wished to sell
- Low liquidity

Corporation - Answer-A distinct legal entity composed of one or more owners

Benefits of a corporation - Answer-- Limited liability
- Unlimited life
- Separation of ownership & management(ability to own shares in several companies
w/out having to work for all of them)
- Ease of raising capital

Drawbacks of a corporation - Answer-- Separation of ownership & management(agency
costs)
- Double taxation

Hybrid - Answer-a cross between a partnership and a corporation

S-Corps - Answer-provide limited liability while allowing the business's owners to be
taxed as if they were a partnership- distributions back to the owners are not taxed twice
as in the case with dividends distributed by regular corporations

Limited Liability Company or LLC - Answer-retains limited liability for its owners, but it
runs and is taxed like a partnership.

Goal of the firm - Answer-maximize shareholder wealth

Shareholders - Answer-- own the firm
- provide the investment to start and expand the firm
- hire management who run the firm

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