Fin 370 Final Exam Guide

IFIN/370 Final Exam Study Guide –

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1) What is the primary goal of a for-profit firm?

Maximize shareholder wealth

Explanation: Every for-profit is held accountable to shareholders above all else.
2) What would be considered a primary market transaction?

The issue of new common stock by a public company

Explanation: When a company issues NEW stock it is considered the primary market, while all subsequent transactions are considered the secondary market.
3) Who represents the principles of an organization based on the agency problem theory?

Explanation: Also known as the Principle-Agent problem, this concept identifies shareholders as the principles, and managers as the agents.

4) A basic financial management principle would be considered?

Risk/return tradeoff

Explanation: The risk/return tradeoff is a simple concept that focuses on creating the highest return for the least amount of risk.
5) What is another name for the acid test?

Quick ratio

Explanation: The acid test is designed to determine the liquidity. It is a ratio of “(cash + short-term securities + AR) / current liabilities)”.
6) What is used to determine the accounting rate of return on stockholders shares in a company?

Operating income return on investment

Explanation: Return on investment of operating...