Exam (elaborations)
Principles of Finance Exam 1 - UARK (Kefu Wu) Questions and Answers
- Course
- Institution
Principles of Finance Exam 1 - UARK (Kefu Wu)
[Show more]
Content preview
Principles of Finance Exam 1 - UARK(Kefu Wu)
Should the firm or financial managers set the goal to maximize profit? - answerNo.
It ignores 3 important factors:
1) Timing
2) Cash flows
3) Risk
What is the goal of a firm? - answerMaximize shareholder wealth
Should the firm maximize Stakeholders' Welfare? - answerNo.
Stakeholders are difficult to be ranked, therefore, their welfare can't be maximized.
What are financial managers' key decisions? (4) - answer1) Financing
2) Investment
3) Capital Budgeting
4) Working Capital
What are Principles of managerial decisions? (5) - answer1) Time Value of Money
2) Risk-Return Tradeoff
3) "Cash is King"
4) Competitive Financial Market
5) Incentive
What is the primary principle that Finance adopted from Economics? - answerMarginal
Cost - Marginal Benefit Analysis.
Wise financial systems must achieve MB > MC!!
What is the difference between Finance and Accounting in terms of business
transactions? - answerFinancial Managers focus on actual Cash Flows, whereas
Accountants focus on Accrual Basis.
Principal-Agent Problem - answerWhen the agent (worker or manager) doesn't act in
the best interest of the principal (owner).
, How do you solve the Principal-Agent Problem? - answerBy corporate governance...
such as laws, rules & processes.
Internally, some firms may offer stock options and/or restricted stocks as a sort of
compensation to managers which link managers' performance/benefits directly to the
firm's stock prices & therefore align managers' interests with the interests of the owners.
What are the Board of Directors responsible for? - answerMaking strategic decisions
What is the President/CEO responsible for? - answerFully in charge of overall business
What is the CFO responsible for? - answerUnder CEO, in charge of overall financial
management
What is the Treasurer responsible for? - answerUnder CFO, manages cash, pension
plans, as well as key risks.
What is the Controller responsible for? - answerUnder CFO, Cheif accountant,
responsible for accounting activities, tax management, and cost control
What are 3 organizational forms? What are their major differences? - answer1) Sole
Proprietorship - unlimited liability, taxed on proprietor's personal tax return.
2) Partnership - unlimited liability for owners and may have to cover debts of other
partners. Taxed on partners' personal tax return.
3) Corporation - limited liability, double taxation on firm and on individual
How do you calculate marginal tax & total tax payment due with a progressive taxation
framework? - answerYou calculate tax payments for each applicable taxable income
bracket w/ the marginal tax rate of that bracket, then add them up together.
Do ethics of the firm affect its share prices? - answerYes
What are financial institutions? - answerThere are fund demanders and fund suppliers
in the economy. Generally, individuals are fund suppliers & firms are fund demanders.
Financial institutions are intermediaries that channel the savings of individuals,
businesses, & governments into loans or investments to fund demanders.
What are the 3 financial institutions? - answer1) Commercial Banks
2) Investment Banks
3) Shadow Banking System
What do commercial banks do? - answerThey receive deopsits and make commercial
laws
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller julianah420. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
79223 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now