Finance Exam 1 Study Guide
Principles of Finance Review Sheet—Exam 1
The exam will include multiple choice questions and problems. If you have worked and understand the end-of-chapter problems that were assigned, you should be able to work the problems on the exam. You should understand the topical areas given in the following list—the concept questions will be primarily based on these topics.
• Overview of Managerial Finance o Why is it important to have some understanding of finance? ▪ Finance deals with decisions concerning cash flows (financing) and cash outflows (investing) so most decisions made in a firm are related to finance. ▪ Finance can also be seen in every other aspect of a company because most decisions cannot be made without considering the impact on the financial well being of the firm. o Understand the differences among the alternative forms of business. What are the advantages and disadvantages of each? In general, how is each taxed? ▪ Proprietorship- single owner who is personally responsible for all liabilities of the firm; represent 70-75% of all businesses • Adv- easy and inexpensive to form, affected by few regulations • Taxed**- as an individual rather than a corporation • Disadv- owner has unlimited personal liability for debts, life is limited, ownership transfer is difficult, firm’s credit dependent on financial strength of owner ▪ Partnership- two or more owners who are personally responsible for all liabilities of the firm; represent 8-10% of all businesses • Adv- easy and inexpensive to form, affected by few regulations • Taxed**- as an individual rather than a corporation • Disadv- owner has unlimited personal liability for debts, life is limited, ownership transfer is difficult, firm’s credit dependent on financial strength of owner ▪ Corporation- a legal entity in
The exam will include multiple choice questions and problems. If you have worked and understand the end-of-chapter problems that were assigned, you should be able to work the problems on the exam. You should understand the topical areas given in the following list—the concept questions will be primarily based on these topics.
• Overview of Managerial Finance o Why is it important to have some understanding of finance? ▪ Finance deals with decisions concerning cash flows (financing) and cash outflows (investing) so most decisions made in a firm are related to finance. ▪ Finance can also be seen in every other aspect of a company because most decisions cannot be made without considering the impact on the financial well being of the firm. o Understand the differences among the alternative forms of business. What are the advantages and disadvantages of each? In general, how is each taxed? ▪ Proprietorship- single owner who is personally responsible for all liabilities of the firm; represent 70-75% of all businesses • Adv- easy and inexpensive to form, affected by few regulations • Taxed**- as an individual rather than a corporation • Disadv- owner has unlimited personal liability for debts, life is limited, ownership transfer is difficult, firm’s credit dependent on financial strength of owner ▪ Partnership- two or more owners who are personally responsible for all liabilities of the firm; represent 8-10% of all businesses • Adv- easy and inexpensive to form, affected by few regulations • Taxed**- as an individual rather than a corporation • Disadv- owner has unlimited personal liability for debts, life is limited, ownership transfer is difficult, firm’s credit dependent on financial strength of owner ▪ Corporation- a legal entity in