Intro to Financial Management

Question 1

Capital Budgeting

Answer 1

Managing long term investments

Evaluation size, timing and risk of future cash flow

Question 2

Define Capital Structure

Answer 2

The mixture of debt and equity maintained by a firm

ie. how much the firm should borrow, finding the least expensive source of funds

Question 3

Working Capital Management

Answer 3

Managing short term assets and liabilities

Question 4

Describe the Agency Problem

Answer 4

The possibilty of conflict of interest between stockholders and management

Question 5

Direct VS Indirect Agency costs

Agency costs refer to the costs of the conflict of interest between stockholders and management

Answer 5

Indirect Agency costs are lost opportunities.
Direct Agency Costs are:
1. Management benefits at the company’s expense
2. Cost of monitoring management actions

Question 6

Describe the Primary Market

Answer 6

The coorporation sells their own shares to raise capital

The shares can either be sold to the general public or privately, negotiated to a specific buyer

Question 7

Describe the Secondary Market

Answer 7

Shares are sold from one owner to another

Question 8

Decribe Dealer Markets

See Types of Secondary Markets

Answer 8

Dealers are connected electronically

OTC Over The Counter Markets

Question 9

Describe Auction Markets

Answer 9

A physical location where buyers can connect with sellers with limited assistance from dealers

Question 10

Name the Major Areas in Finance

Answer 10

1. Corporate Finance
2. Investments
3. Financial Institutions
4. International Finance
5. Fintech