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FINANCE CHAPTER 1 REVIEW QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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FINANCE CHAPTER 1 REVIEW QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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FINANCE CHAPTER 1 REVIEWQUESTIONS AND ANSWERS WITH
SOLUTIONS 2024
WhatWareWtheWthreeWtypesWofWfinancialWmanagementWdecisions?W-WANSWERWCapitalWBudgetingW
CapitalWStructure
WorkingWCapitalWManagement
GiveWanWexampleWofWCapitalWBudgeting.W-
WANSWERWDecidingWonWwhetherWtoWexpandWaWmanufacturingWplant.
GiveWanWexampleWofWCapitalWStructure.W-
WANSWERWDecidingWwhetherWtoWissueWnewWequityWandWuseWtheWproceedsWtoWretireWoutstandingWdebt.
GiveWanWexampleWofWWorkingWCapitalWManagement.W-
WANSWERWModifyingWtheWfirm'sWcreditWcollectionWpolicyWwithWitsWcustomers.
WhatWareWtheWfourWprimaryWdisadvantagesWtoWtheWsoleWproprietorshipWandWpartnershipWformsWofWbusin
essWorganization?W-WANSWERWUnlimitedWliability
LimitedWlife
DifficultyWinWtransferringWownership
HardWtoWraiseWcapitalWfunds
WhatWbenefitsWareWthereWtoWtheseWtypesWofWbusinessWorganizationWasWopposedWtoWtheWcorporateWform
?W-WANSWERWSimpler
LessWregulation
TheWownersWareWalsoWtheWmanagersW
SometimesWpersonalWtaxWratesWareWbetterWthanWcorporateWtaxWrates
WhatWisWtheWprimaryWdisadvantageWofWtheWcorporateWformWofWorganization?W-
WANSWERWTheWprimaryWdisadvantageWofWtheWcorporateWformWisWtheWdoubleWtaxationWtoWshareholdersW
ofWdistributedWearningWandWdividends.
, NameWatWleastW2WadvantagesWofWcorporateWorganization.W-WANSWERWLimitedWliability
EaseWofWtransferability
AbilityWtoWraiseWcapitalW
UnlimitedWlife
InWaWlargeWcorporation,WwhatWareWtheWtwoWdistinctWgroupsWthatWreportWtoWtheWchiefWfinancialWofficer?W
WhichWgroupWisWtheWfocusWofWcorporateWfinance?W-
WANSWERWTheWtreasurer'sWofficeWandWtheWcontroller'sWofficeWareWtheWtwoWprimaryWorganizationalWgrou
psWthatWreportWdirectlyWtoWtheWchiefWfinancialWofficer.WTheWcontroller'sWofficeWhandlesWcostWandWfinancia
lWaccounting,WtaxWmanagement,WandWmanagementWinformationWsystems.WTheWtreasurer'sWofficeWisWresp
onsibleWforWcashWandWcreditWmanagement,WcapitalWbudgeting,WandWfinancialWplanning.WTherefore,WtheWs
tudyWofWcorporateWfinanceWisWconcentratedWwithinWtheWfunctionsWofWtheWtreasure'sWoffice.
WhatWgoalWshouldWalwaysWmotivateWtheWactionsWofWtheWfirm'sWfinancialWmanager?W-
WANSWERWToWmaximizeWtheWcurrentWmarketWvalueW(shareWprice)WofWtheWequityWofWtheWfirmW(whetherWit
sWpubliclyWtradedWorWnot)
WhoWownsWaWcorporation?W-
WANSWERWInWtheWcorporateWformWofWownership,WtheWshareholdersWareWtheWownersWofWtheWfirm.
DescribeWtheWprocessWwherebyWtheWownersWcontrolWtheWfirm'sWmanagement.W-
WANSWERWTheWshareholdersWelectWtheWdirectorsWofWtheWcorporation,WwhoWinWturnWappointWtheWfirm'sW
management.
WhatWisWtheWmainWreasonWthatWanWagencyWrelationshipWexistsWinWtheWcorporateWformWofWorganization?W
-
WANSWERWThisWseparationWofWownershipWfromWcontrolWinWtheWcorporateWformWofWorganizationWisWwhatW
causesWagencyWproblemsWtoWexist.
InWthisWcontext,WwhatWkindsWofWproblemsWcanWarise?W-
WANSWERWManagementWmayWactWinWitsWownWorWsomeoneWelse'sWbestWinterests,WratherWthanWthoseWofWt
heWshareholders.WIfWsuchWeventsWoccur,WtheyWmayWcontradictWtheWgoalWofWmaximizingWtheWshareWpriceW
ofWtheWequityWofWtheWfirm.
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