BFIN300 Midterm Chapter 1 Exam Questions With Solutions
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Course
BFIN300
Institution
BFIN300
BFIN300 Midterm Chapter 1 Exam
Questions With Solutions
sole proprietorship one person owns the business, simplest form of business, best way for
owner to keep all of its profits.
- all liability falls onto the owner
-ex. local business, lemonade stand
Partnership two or more owners. Busin...
BFIN300 Midterm Chapter 1 Exam
Questions With Solutions
sole proprietorship one person owns the business, simplest form of business, best way for
owner to keep all of its profits.
- all liability falls onto the owner
-ex. local business, lemonade stand
Partnership two or more owners. Business interests are not easily transferred
-ex. Law firms, accounting firms
Corporation - most important form of business in the US. Considered a legal person.
Separate and distinct from. shareholders
- ownership can be. easily transferred. shareholders have limited liability
- corporations must pay taxes
double taxation corporation pays taxes on earnings, pays a dividend to shareholders after
taxes are paid by corporate. Taxed on dividends (taxed twice)
Goal of financial management maximize shareholder value
, BFIN300 Midterm Chapter 1 Exam
Questions With Solutions
Sarbanes Oxys Act - Enacted by congress
- Requires that each publicly traded company (listed in exchange) gives assessment of its own
internal controls and financial reporting
- Requires them to hire an independent auditor to evaluate their own assessment of itself
Why do we need the Sarbanes Oxys Act? there was extreme fraud going on. It made
things easier for shareholders. Financial statements need to be accurate
Agency relationship - relationship between management. of a company and shareholders
- management is the agent of a shareholder
(Agency Problem) Conflict of interest examples excessive expenses (corporate expenses),
compensation of management
What happens when management does not perform in the way shareholders expect them to
perform? shareholders have a right to fire them
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