CHAPTER 1/ INTRODUCTION TO CORPORATE FINANCE

Question 1

WHAT ARE THE THREE TYPES OF FINANCIAL MANAGEMENT DECISIONS? FOR EACH TYPE OF DECISION, GIVE AN EXAMPLE OF A BUSINESS TRANSACTION THAT WOULD BE RELEVANT?

Answer 1

1. CAPITAL BUDGETING DECISIONS ( WHAT LONG TERM INVESTMENTS SHOULD YOU UNDERTAKE?)
2. CAPITAL STRUCTURE DECISIONS (WHERE WILL YOU GET THE LONG TERM FINANCING TO PAY FOR YOUR INVESTMENT?)
3. WORKING CAPITAL MANAGEMENT(HOW WILL YOU MANAGE THE EVERYDAY FINANCIAL ACTIVITIES?)

Question 2

WHAT IS CORPORATE FINANCE?

Answer 2

THE STUDY OF WAYS TO ANSWER THREE QUESTIONS:
1. WHAT LONG TERM INVESTMENTS SHOULD YOU UNDERTAKE?

2. WHERE WILL YOU GET THE LONG TERM FINANCING TO PAY FOR YOUR INVESTMENT?
3. HOW WILL YOU MANAGE THE EVERYDAY FINANCIAL ACTIVITIES?

Question 3

WHAT IS THE CAPITAL BUDGETING DECISION ?

Answer 3

WHAT LONG TERM INVESTMENTS SHOULD YOU UNDERTAKE.

Question 4

WHAT DO YOU CALL THE SPECIFIC MIX OF LONGTERM DEBT AND EQUITY THAT A FIRM CHOOSES TO USE?

Answer 4

CAPITAL STRUCTURE.

Question 5

INTO WHAT CATEGORY OF FINANCIAL MANAGEMENT DOES CASH MANAGEMENT FALL ?

Answer 5

WORKING CAPITAL MANAGEMENT.

Question 6

WHAT ARE THE THREE FORMS OF BUSINESS ORGANIZATION ?

Answer 6

SOLE PROPRIETORSHIP

PARTRNERSHIP

CORPORATION

Question 7

WHAT IS A SOLE PROPRIETORSHIP ?

Answer 7

A BIZZ OWNED BY ONE PERSON.

Question 8

WHAT IS A PARTNERSHIP?

Answer 8

A BIZZ FORMED BY TWO OR MORE INDIVIDUALS OR ENTITIES.

Question 9

WHAT IS A CORPORATION?

Answer 9

A BIZZ CREATED AS A DISTINCT LEGAL ENTITY.