The final exam consists of 60 multiple choice and/or true false questions worth 2.5
points each. The 60 assessment items may include, but are not limited to the following:
1. The goal of the financial manager
Maximize stockholder’s wealth
2. Legal forms of business organization, with specific emphasis on the advantages/disadvantages of
Sole Proprietorship: a business owned by one individual (greatest in number of the forms)
Advantages: Easiest to start, least regulated, single owner gets all profits, taxed as personal
Disadvantages: Limited to life of owner, equity capital limited to owner’s personal wealth,
unlimited liability, difficult to sell ownership interest
Partnership: Similar to sole proprietorship, except the business has more than one owner.
Advantages: more capital available and relatively easy to start, taxation is simple (each owner
reports their percentage of income
Disadvantages: unlimited liability extends to both partners (joint and severally liable),
difficult to raise capital, difficult to transfer ownership
NOTE: A limited partnership limits the partners to their investment, but one partner has to be
Corporation: a separate legal entity that exists apart from its owners (shareholders or stockholders).
Most important in total sales, assets, profits, and contributions to national income.
Advantages: limited liability, unlimited life, separation of owners/management, transfer of
ownership is easy, easier to raise capital
Disadvantages: separation of owners/management, double taxation (corporate income and
dividends paid are both taxed)
S Corporation: The stockholders of the form maintain the limited liability of a corporation but are
taxed as a partnership.
Limited Liability Corporation (LLC): Cannot carry on certain service businesses (law, medicine, and
accounting), provides limited personal liability, owners are members and can be other
corporations, members run the company or use outside management groups
3. Financial market participants, trading, and listing
Market participants: savers and businesses who need capital
Trading: most transfers occur through specialized financial institutions brought together in financial
markets (those with funds are available to invest in the companies who need it)
Types of Markets:
Primary: securities are issued by firms to their first investors
Secondary: where previously purchased issued securities are traded between investors
Dealer: A secondary market called an over-the-counter market.
The dealer is involved
in one side of the other of every trade. Ex. NASDAQ
Organized/Auction: Secondary market in which the market occupies a physical
location. Brokers match and sell orders without actually owning the securities
involved (ex. NYSE)
4. Basic financial statements (construction and interpretation, with special emphasis on dividends,
addition to retained earnings)
Balance Sheet: Snapshot of firm’s assets and liabilities at a given point in time.
Assets are what a