FNCE chapter 1- Intro

Question 1

what is finance

Answer 1

decisions that deal with how money is raised and used

Question 2

primary forms of business organizations

Answer 2

proprietorship
partnership
corporation

Question 3

goals of a corporation

Answer 3

maximize shareholders’ value and stockholder wealth which maximizes the stock price

Question 4

managerial actions to maximize stockholders’ wealth

Answer 4

capital structure decisions
capital budgeting decisions
dividend policy decisions

Question 5

factors influenced by managers that affect stock price

Answer 5

projected cash flow
time of cash flow streams

Question 6

agency relationships

Answer 6

exists whenever a principal hires an agent to act on his or her behalf

Question 7

business ethics

Answer 7

a standard of conduct and moral behaviour

Question 8

corporate governance

Answer 8

the set of rules a firm follows when conducting business

Question 9

forms of business in other countries

Answer 9

foreign firms have a higher concentration of ownership and different financial institutions

Question 10

five reasons firms go International

Answer 10

seek new markets
seek new material
seek new technology
seek production efficiency
avoid political and regulatory hurdles

Question 11

factors distinguishing domestic firms from multinational firms

Answer 11

different currency denominations
economic and legal ramifications
language and cultural differences
roles of governments
political risk

Question 12

proprietorship

Answer 12

unincorporated business owned by one individual

Question 13

partnership

Answer 13

business owned by two or more owners

Question 14

corporation

Answer 14

a legal entity created by the state which means it has the legal authority to act like a person when running a business

Question 15

limited liability partnership

Answer 15

A partnership wherein at least one partner is designated as a general partner with unlimited personal financial liability, and the other partner’s liability is limited to the amounts they invest in the firm

Question 16

limited liability company

Answer 16

Offers the limited personal liability associated with a corporation; however, the company’s income is taxed like that of a partnership

Question 17

decisions financial managers make can affect a firm’s value because

Answer 17

they affect the amount, timing, and riskiness of the cash flows the firm produces

Question 18

firms value

Answer 18

a function of the cash flows it is expected to generate in the future and the rate of return at which investors are willing to provide funds to the firm

Question 19

value

Answer 19

the worth of the expected future cash flows restated in current dollars

Question 20

earnings per share (EPS)

Answer 20

net income divided by the number of outstanding shares in common stock

Question 21

stakeholders

Answer 21

those who are associated with a business
ex. manager, employee, stockholder etc

Question 22

investors prefer

Answer 22

more value
receive cash sooner rather than later
less risk