Question 1

Which one of the following statements is TRUE?

Accepted Answer

A)  If a company has a classified board, fewer board seats are filled each year. 
B)  One tool of corporate governance is choosing a good investment banker. 
C)  A classified board is one in which the board members serve anonymously. 
D)  A classified board is one in which an announcement requesting applications for board members appears in the newspaper. 
E)  In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year. 
A)  If a company has a classified board, fewer board seats are filled each year. 
B)  One tool of corporate governance is choosing a good investment banker. 
C)  A classified board is one in which the board members serve anonymously. 
D)  A classified board is one in which an announcement requesting applications for board members appears in the newspaper. 
E)  In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year.

Question 2

Two important issues in corporate governance are (1) the rules that cover the board's ability to fire the CEO and (2) the rules that cover the CEO's ability to remove members of the board.

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following statements is TRUE?

Accepted Answer

A)  A manager/shareholder agency conflict arises when the manager's actions aren't in the company's best interest. 
B)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites. 
C)  An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else. 
D)  A quarter-end bonus is an example of a nonpecuniary benefit. 
E)  A company's matching contribution to a retirement plan is a nonpecuniary benefit. 
A)  A manager/shareholder agency conflict arises when the manager's actions aren't in the company's best interest. 
B)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites. 
C)  An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else. 
D)  A quarter-end bonus is an example of a nonpecuniary benefit. 
E)  A company's matching contribution to a retirement plan is a nonpecuniary benefit.

Question 4

ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following corporate board characteristics usually improves corporate governance?

Accepted Answer

A)  The board has a majority of outsiders who have experience and aren't too busy. 
B)  CEO is the chairman of the board. 
C)  The board is as large as is possible. 
D)  Board members are paid at a rate higher than their peers and their payment is mostly cash. 
E)  The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company operates. 
A)  The board has a majority of outsiders who have experience and aren't too busy. 
B)  CEO is the chairman of the board. 
C)  The board is as large as is possible. 
D)  Board members are paid at a rate higher than their peers and their payment is mostly cash. 
E)  The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company operates.

Question 6

Which one of the following corporate board characteristics usually improves corporate governance?

Accepted Answer

A)  CEO is not the chairman of the board. 
B)  The board has many outsiders who have lots of other important commitments. 
C)  The board is as large as is possible. 
D)  Board members are paid at a rate higher than their peers and their payment is mostly cash. 
E)  The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company operates. 
A)  CEO is not the chairman of the board. 
B)  The board has many outsiders who have lots of other important commitments. 
C)  The board is as large as is possible. 
D)  Board members are paid at a rate higher than their peers and their payment is mostly cash. 
E)  The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company operates.

Question 7

Which one of the following statements is TRUE?

Accepted Answer

A)  Shareholders benefit when the company is acquired because they usually receive a higher price for their shares 
B)  Anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price. 
C)  Shareholders want to prevent takeovers because they don't want the company purchased out from under them. 
D)  A shareholder rights provision encourages takeovers because shareholders have the right to approve the takeover if the terms are good. 
E)  A classified board is one in which the board members serve anonymously. 
A)  Shareholders benefit when the company is acquired because they usually receive a higher price for their shares 
B)  Anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price. 
C)  Shareholders want to prevent takeovers because they don't want the company purchased out from under them. 
D)  A shareholder rights provision encourages takeovers because shareholders have the right to approve the takeover if the terms are good. 
E)  A classified board is one in which the board members serve anonymously.

Question 8

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?

Accepted Answer

A)  To enable the firm to borrow at a below-market interest rate. 
B)  To make it easier to grant stock options to employees. 
C)  To help prevent a hostile takeover. 
D)  To help retain valued employees. 
E)  To increase worker productivity. 
A)  To enable the firm to borrow at a below-market interest rate. 
B)  To make it easier to grant stock options to employees. 
C)  To help prevent a hostile takeover. 
D)  To help retain valued employees. 
E)  To increase worker productivity.

Question 9

Which one of the following statements is TRUE?

Accepted Answer

A)  One tool of corporate governance is how the company's charter affects the likelihood of a takeover. 
B)  One tool of corporate governance is stock repurchases. 
C)  One tool of corporate governance is a company's tax avoidance strategy. 
D)  One tool of corporate governance is choosing a good investment banker. 
E)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
A)  One tool of corporate governance is how the company's charter affects the likelihood of a takeover. 
B)  One tool of corporate governance is stock repurchases. 
C)  One tool of corporate governance is a company's tax avoidance strategy. 
D)  One tool of corporate governance is choosing a good investment banker. 
E)  Creditors have a claim on a firm's earning stream through the dividend payments they receive.

Question 10

Which one of the following statements is TRUE?

Accepted Answer

A)  A corporate executive health club is an example of a nonpecuniary benefit. 
B)  When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease. 
C)  A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching. 
D)  A supplier substituting a lower-quality raw material without approval is an example of asset switching. 
E)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites.
​ 
A)  A corporate executive health club is an example of a nonpecuniary benefit. 
B)  When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease. 
C)  A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching. 
D)  A supplier substituting a lower-quality raw material without approval is an example of asset switching. 
E)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites.
​

Question 11

Which one of the following statements is TRUE?

Accepted Answer

A)  Lenders will protect themselves from asset switching by charging a higher interest rate. 
B)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
C)  An example of asset switching is an option to exchange one piece of real estate for another. 
D)  Lenders can't legally prevent a firm from engaging in asset switching. 
E)  Firms borrowing money have greater flexibility to use that money when there are debt covenants. 
A)  Lenders will protect themselves from asset switching by charging a higher interest rate. 
B)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
C)  An example of asset switching is an option to exchange one piece of real estate for another. 
D)  Lenders can't legally prevent a firm from engaging in asset switching. 
E)  Firms borrowing money have greater flexibility to use that money when there are debt covenants.

Question 12

Which one of the following statements is TRUE?

Accepted Answer

A)  Management is said to be entrenched when senior managers are unlikely to be fired. 
B)  A company's matching contribution to a retirement plan is a nonpecuniary benefit. 
C)  Company sponsorship of a local charity is an example of a nonpecuniary benefit. 
D)  A manager/shareholder agency conflict arises when shareholders sell their stock even though management says the stock is undervalued. 
E)  A manager/shareholder agency conflict arises when the board of directors pays a larger dividend than the firm's earnings could support. 
A)  Management is said to be entrenched when senior managers are unlikely to be fired. 
B)  A company's matching contribution to a retirement plan is a nonpecuniary benefit. 
C)  Company sponsorship of a local charity is an example of a nonpecuniary benefit. 
D)  A manager/shareholder agency conflict arises when shareholders sell their stock even though management says the stock is undervalued. 
E)  A manager/shareholder agency conflict arises when the board of directors pays a larger dividend than the firm's earnings could support.

Question 13

Which one of the following statements is TRUE?

Accepted Answer

A)  An outside director is a board member who has no other affiliation with the company. 
B)  A classified board is one in which an announcement requesting applications for board members appears in the newspaper. 
C)  In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year. 
D)  Inside directors are more concerned with shareholders' interests since they are more closely concerned with firm operations. 
E)  Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board 
A)  An outside director is a board member who has no other affiliation with the company. 
B)  A classified board is one in which an announcement requesting applications for board members appears in the newspaper. 
C)  In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year. 
D)  Inside directors are more concerned with shareholders' interests since they are more closely concerned with firm operations. 
E)  Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board

Question 14

Which one of the following statements is TRUE?

Accepted Answer

A)  A manager avoiding a positive NPV but risky project is an example of a manager-shareholder conflict. 
B)  Management is said to be entrenched when the company is doing badly and is "stuck in a rut." 
C)  A quarter-end bonus is an example of a nonpecuniary benefit. 
D)  A company's matching contribution to a retirement plan is a nonpecuniary benefit. 
E)  Company sponsorship of a local charity is an example of a nonpecuniary benefit. 
A)  A manager avoiding a positive NPV but risky project is an example of a manager-shareholder conflict. 
B)  Management is said to be entrenched when the company is doing badly and is "stuck in a rut." 
C)  A quarter-end bonus is an example of a nonpecuniary benefit. 
D)  A company's matching contribution to a retirement plan is a nonpecuniary benefit. 
E)  Company sponsorship of a local charity is an example of a nonpecuniary benefit.

Question 15

Which one of the following statements is TRUE?

Accepted Answer

A)  An agency problem occurs when an owner/manager sells stock to an outsider but continues to consume perquisites. 
B)  Firms borrowing money have greater flexibility to use that money when there are debt covenants. 
C)  When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease. 
D)  A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching. 
E)  A supplier substituting a lower-quality raw material without approval is an example of asset switching. 
A)  An agency problem occurs when an owner/manager sells stock to an outsider but continues to consume perquisites. 
B)  Firms borrowing money have greater flexibility to use that money when there are debt covenants. 
C)  When lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's WACC can decrease. 
D)  A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching. 
E)  A supplier substituting a lower-quality raw material without approval is an example of asset switching.

Question 16

Which one of the following statements is TRUE?

Accepted Answer

A)  An example of asset switching is borrowing money to buy equipment but instead taking it to Las Vegas to gamble with it. 
B)  The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost. 
C)  An example of an agency cost is the salary of the agent hired to work for the principal. 
D)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
E)  An example of asset switching is an option to exchange one piece of real estate for another. 
A)  An example of asset switching is borrowing money to buy equipment but instead taking it to Las Vegas to gamble with it. 
B)  The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost. 
C)  An example of an agency cost is the salary of the agent hired to work for the principal. 
D)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
E)  An example of asset switching is an option to exchange one piece of real estate for another.

Question 17

Which one of the following statements is TRUE?

Accepted Answer

A)  Personal use of the corporate jet is an example of a nonpecuniary benefit. 
B)  A supplier substituting a lower-quality raw material without approval is an example of asset switching. 
C)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites. 
D)  An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else. 
E)  A quarter-end bonus is an example of a nonpecuniary benefit. 
A)  Personal use of the corporate jet is an example of a nonpecuniary benefit. 
B)  A supplier substituting a lower-quality raw material without approval is an example of asset switching. 
C)  An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites. 
D)  An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else. 
E)  A quarter-end bonus is an example of a nonpecuniary benefit.

Question 18

Which one of the following statements is TRUE?

Accepted Answer

A)  An example of asset switching is when a company borrows for a new manufacturing facility but then uses it
To repurchase its own stock. 
B)  An example of an agency cost is when an attorney hires an expert witness for a trial. 
C)  The commission required by the Federal Housing Agency for a small business loan is an example of
An agency cost. 
D)  An example of an agency cost is the salary of the agent hired to work for the principal. 
E)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
A)  An example of asset switching is when a company borrows for a new manufacturing facility but then uses it
To repurchase its own stock. 
B)  An example of an agency cost is when an attorney hires an expert witness for a trial. 
C)  The commission required by the Federal Housing Agency for a small business loan is an example of
An agency cost. 
D)  An example of an agency cost is the salary of the agent hired to work for the principal. 
E)  Creditors have a claim on a firm's earning stream through the dividend payments they receive.

Question 19

A company issues bonds saying that it will use the proceeds for a safe investment.Instead, it uses the proceeds for a risky investment.Which of the following statements is true about this situation.

Accepted Answer

A)  This will result in a decrease in the value of the debt because the company is riskier. 
B)  This will result in a decrease in the value of the equity because the company is riskier. 
C)  This will result in a lawsuit from the stockholders because it is bait and switch. 
D)  This will cause bondholders to convert their bonds to stock. 
E)  Dividends will go up to compensate shareholders for their increased risk. 
A)  This will result in a decrease in the value of the debt because the company is riskier. 
B)  This will result in a decrease in the value of the equity because the company is riskier. 
C)  This will result in a lawsuit from the stockholders because it is bait and switch. 
D)  This will cause bondholders to convert their bonds to stock. 
E)  Dividends will go up to compensate shareholders for their increased risk.

Question 20

Which one of the following statements is TRUE?

Accepted Answer

A)  Outside shareholders will pay less for stock if they think the original owners will consume perquisites. 
B)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
C)  An example of asset switching is an option to exchange one piece of real estate for another. 
D)  An agency cost is the wage required to pay someone who is hired to perform a service. 
E)  An example of an agency cost is when an attorney hires an expert witness for a trial. 
A)  Outside shareholders will pay less for stock if they think the original owners will consume perquisites. 
B)  Creditors have a claim on a firm's earning stream through the dividend payments they receive. 
C)  An example of asset switching is an option to exchange one piece of real estate for another. 
D)  An agency cost is the wage required to pay someone who is hired to perform a service. 
E)  An example of an agency cost is when an attorney hires an expert witness for a trial.

Exam 13: Corporate Governance

Which one of the following statements is TRUE?

Two important issues in corporate governance are (1) the rules that cover the board's ability to fire the CEO and (2) the rules that cover the CEO's ability to remove members of the board.

Which one of the following statements is TRUE?

ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.

Which one of the following corporate board characteristics usually improves corporate governance?

Which one of the following corporate board characteristics usually improves corporate governance?

Which one of the following statements is TRUE?

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

Which one of the following statements is TRUE?

A company issues bonds saying that it will use the proceeds for a safe investment.Instead, it uses the proceeds for a risky investment.Which of the following statements is true about this situation.

Which one of the following statements is TRUE?

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risk and Return

Corporate Valuation and Stock Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, Seasoned Offerings, and Investment Banks

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Dynamic Capital Structures and Corporate Valuation

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, Reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters