Question 1

Which of the following statements is FALSE?

Accepted Answer

A) In many other countries, the central conflict is between what are called "controlling shareholders" and "minority shareholders." 
B) Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders, such as employing family members rather than the most talented managers or establishing contracts favorable to other family controlled firms. 
C) As recent events and corporate scandals have shown, investor protection in the United States is generally seen as substandard when compared to the developed economies in the world. 
D) Much of the focus in the United States is on the agency conflict between shareholders, who own the majority of a firm but are a dispersed group, and managers, who own little of the firm and must be monitored. 
A) In many other countries, the central conflict is between what are called "controlling shareholders" and "minority shareholders." 
B) Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders, such as employing family members rather than the most talented managers or establishing contracts favorable to other family controlled firms. 
C) As recent events and corporate scandals have shown, investor protection in the United States is generally seen as substandard when compared to the developed economies in the world. 
D) Much of the focus in the United States is on the agency conflict between shareholders, who own the majority of a firm but are a dispersed group, and managers, who own little of the firm and must be monitored.

Question 2

Tammy is a member of the Board of Directors of Moon Corporation. Her husband is the manager of a large division. What type of director is Tammy?

Accepted Answer

A) inside director 
B) outside director 
C) gray director 
D) resident director 
A) inside director 
B) outside director 
C) gray director 
D) resident director

Question 3

Describe the "stakeholder" model of corporate governance.

Accepted Answer

The agency costs and the ways to control

Question 4

Describe the main requirements of the Sarbanes-Oxley Act of 2002.

Accepted Answer

1. Strict limits on the amount of non-au

Question 5

Which of the following statements is FALSE?

Accepted Answer

A) Increasing the pay-for-performance sensitivity comes with the added benefit of reducing managers' risk. 
B) Stock and option grants give managers a direct incentive to increase the stock price to make their stock or options as valuable as possible. 
C) By tying compensation to performance, the shareholders effectively give the manager an ownership stake in the firm. 
D) During the 1990s, most companies adopted compensation policies that more directly gave managers an ownership stake by including grants of stock or stock options to executives. 
A) Increasing the pay-for-performance sensitivity comes with the added benefit of reducing managers' risk. 
B) Stock and option grants give managers a direct incentive to increase the stock price to make their stock or options as valuable as possible. 
C) By tying compensation to performance, the shareholders effectively give the manager an ownership stake in the firm. 
D) During the 1990s, most companies adopted compensation policies that more directly gave managers an ownership stake by including grants of stock or stock options to executives.

Question 6

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $62.04 per share. The following are the week-ending stock prices that occurred during the quarter:   What is the most likely date on which the stock options were awarded?

Accepted Answer

A) 13-Sep-05 
B) 11-Oct-05 
C) 13-Dec-05 
D) not enough information to answer the question 
A) 13-Sep-05 
B) 11-Oct-05 
C) 13-Dec-05 
D) not enough information to answer the question

Question 7

What is corporate governance?

Accepted Answer

Corporate governance is the sy

Question 8

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $55.00 per share. The following are the week-ending stock prices that occurred during the quarter:   If Movin On Up engaged in the practice of backdating, which of the following is the most likely exercise price for Billy's options?

Accepted Answer

A) $65.52 
B) $67.50 
C) $65.00 
D) $56.82 
A) $65.52 
B) $67.50 
C) $65.00 
D) $56.82

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) The incentives come from owning stock in the company and from compensation that is sensitive to performance. 
B) The role of the corporate governance system is to mitigate the conflict of interest that results from the combination of ownership and control without unduly burdening managers with the risk of the firm. 
C) Punishment comes when a board fires a manager for poor performance or fraud, or when, upon failure of the board to act, shareholders or raiders launch control contests to replace the board and management. 
D) The corporate governance system attempts to align interests by providing incentives for taking the right action and punishments for taking the wrong action. 
A) The incentives come from owning stock in the company and from compensation that is sensitive to performance. 
B) The role of the corporate governance system is to mitigate the conflict of interest that results from the combination of ownership and control without unduly burdening managers with the risk of the firm. 
C) Punishment comes when a board fires a manager for poor performance or fraud, or when, upon failure of the board to act, shareholders or raiders launch control contests to replace the board and management. 
D) The corporate governance system attempts to align interests by providing incentives for taking the right action and punishments for taking the wrong action.

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity. 
B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion, which is hard to measure. 
C) While decreasing managers' risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects. 
D) In the absence of monitoring, the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy. 
A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity. 
B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion, which is hard to measure. 
C) While decreasing managers' risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects. 
D) In the absence of monitoring, the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy.

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) A board is said to be classified when its monitoring duties have been compromised by connections or perceived loyalties to management. 
B) Even the most active independent directors spend only one or two days per month on firm business, and many independent directors sit on multiple boards, further dividing their attention. 
C) On a board composed of insider, gray, and independent directors, the role of the independent director is really that of a watchdog. 
D) Because independent directors' personal wealth is likely to be less sensitive to performance than that of insider and gray directors, they have less incentive to closely monitor the firm. 
A) A board is said to be classified when its monitoring duties have been compromised by connections or perceived loyalties to management. 
B) Even the most active independent directors spend only one or two days per month on firm business, and many independent directors sit on multiple boards, further dividing their attention. 
C) On a board composed of insider, gray, and independent directors, the role of the independent director is really that of a watchdog. 
D) Because independent directors' personal wealth is likely to be less sensitive to performance than that of insider and gray directors, they have less incentive to closely monitor the firm.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) The Cadbury Commission stiffened the criminal penalties for providing false information to shareholders. 
B) The Exchange Acts of 1933 and 1934, among other things, established the Securities and Exchange Commission (SE
C) and prohibited trading on private information gained as an insider of a firm. 
C) Many of the problems at Enron, WorldCom, and elsewhere were kept hidden from boards and shareholders until it was too late. In the wake of these scandals, many people felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of a company. 
D) While one study found that those firms that separated the position of CEO and chairman performed better, another found no relation between the independence of key board committees and firm performance in the post-Cadbury era. 
A) The Cadbury Commission stiffened the criminal penalties for providing false information to shareholders. 
B) The Exchange Acts of 1933 and 1934, among other things, established the Securities and Exchange Commission (SE
C) and prohibited trading on private information gained as an insider of a firm. 
C) Many of the problems at Enron, WorldCom, and elsewhere were kept hidden from boards and shareholders until it was too late. In the wake of these scandals, many people felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of a company. 
D) While one study found that those firms that separated the position of CEO and chairman performed better, another found no relation between the independence of key board committees and firm performance in the post-Cadbury era.

Question 13

Which of the following statements is FALSE?

Accepted Answer

A) The relationship between managerial ownership and firm value is unlikely to be the same for every firm, or even for different executives of the same firm. 
B) Even with the risk benefits of separating ownership and control, there are still examples of corporations in which the top managers have substantial ownership interests. 
C) Academic studies do not support the notion that greater managerial ownership is associated with fewer value-reducing actions by managers. 
D) While increasing managerial ownership may reduce perquisite consumption, it also makes managers harder to fire-thus reducing the incentive effect of the threat of dismissal. 
A) The relationship between managerial ownership and firm value is unlikely to be the same for every firm, or even for different executives of the same firm. 
B) Even with the risk benefits of separating ownership and control, there are still examples of corporations in which the top managers have substantial ownership interests. 
C) Academic studies do not support the notion that greater managerial ownership is associated with fewer value-reducing actions by managers. 
D) While increasing managerial ownership may reduce perquisite consumption, it also makes managers harder to fire-thus reducing the incentive effect of the threat of dismissal.

Question 14

What are some of the negative effects of increasing the sensitivity of managerial pay to firm performance?

Accepted Answer

Increasing the pay-for-performance sensi

Question 15

How does a pyramid structure work?

Accepted Answer

In a pyramid structure, a family first c

Question 16

Which of the following is an example of an agency problem?

Accepted Answer

A) managers not working as diligently if they are not the sole owner of the business 
B) the board of directors firing an incompetent manager 
C) the manager owning a great deal of stock in the company 
D) a corporate raider attempting to purchase the company 
A) managers not working as diligently if they are not the sole owner of the business 
B) the board of directors firing an incompetent manager 
C) the manager owning a great deal of stock in the company 
D) a corporate raider attempting to purchase the company

Question 17

Which of the following was not a finding of the Cadbury Commission?

Accepted Answer

A) Audit and compensation committees should be made up entirely of independent directors or, at least, have a majority of them. 
B) Auditors should be rotated, and there should be fuller disclosure of non-audit work. 
C) The CEO should not be chairman of the board, and at the very least there should be a lead independent director with similar agenda-setting powers. 
D) The CEO and the CFO should personally attest to the accuracy of the financial statements presented to shareholders. 
A) Audit and compensation committees should be made up entirely of independent directors or, at least, have a majority of them. 
B) Auditors should be rotated, and there should be fuller disclosure of non-audit work. 
C) The CEO should not be chairman of the board, and at the very least there should be a lead independent director with similar agenda-setting powers. 
D) The CEO and the CFO should personally attest to the accuracy of the financial statements presented to shareholders.

Question 18

The Sarbanes-Oxley Act requires all of the following EXCEPT ________.

Accepted Answer

A) audit partners rotate every five years to limit the likelihood that auditing relationships become too cozy over long periods of time 
B) strict limits on the amount of non-audit fees (consulting or otherwise)that an accounting firm can earn from the same firm that it audits 
C) senior management and the boards of public companies to be comfortable enough with the process through which funds are allocated and controlled, and outcomes monitored throughout the firm, to be willing to attest to their effectiveness and validity 
D) the auditor must personally attest to the accuracy of the financial statements presented to shareholders and to sign a statement to that effect 
A) audit partners rotate every five years to limit the likelihood that auditing relationships become too cozy over long periods of time 
B) strict limits on the amount of non-audit fees (consulting or otherwise)that an accounting firm can earn from the same firm that it audits 
C) senior management and the boards of public companies to be comfortable enough with the process through which funds are allocated and controlled, and outcomes monitored throughout the firm, to be willing to attest to their effectiveness and validity 
D) the auditor must personally attest to the accuracy of the financial statements presented to shareholders and to sign a statement to that effect

Question 19

Which of the following statements is FALSE?

Accepted Answer

A) The shareholders as a group elect a board of directors to monitor managers. The directors themselves, however, have the same conflict of interest-monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely. 
B) In principle, the board of directors hires the executive team, sets its compensation, approves major investments and acquisitions, and dismisses executives if necessary. 
C) In the United States, the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders)and the interests of other stakeholders in the firm (such as the employees). 
D) When the ownership of a corporation is widely held, no one shareholder has an incentive to bear the cost of monitoring, because she bears the full cost of monitoring but the benefit is divided among all shareholders. 
A) The shareholders as a group elect a board of directors to monitor managers. The directors themselves, however, have the same conflict of interest-monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely. 
B) In principle, the board of directors hires the executive team, sets its compensation, approves major investments and acquisitions, and dismisses executives if necessary. 
C) In the United States, the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders)and the interests of other stakeholders in the firm (such as the employees). 
D) When the ownership of a corporation is widely held, no one shareholder has an incentive to bear the cost of monitoring, because she bears the full cost of monitoring but the benefit is divided among all shareholders.

Question 20

Directors who are not employees, former employees, or family members of employees and who do not have existing or potential business relationships with the firm are called ________.

Accepted Answer

A) monitoring directors 
B) independent directors 
C) gray directors 
D) inside directors 
A) monitoring directors 
B) independent directors 
C) gray directors 
D) inside directors

Exam 26: Corporate Governance

Which of the following statements is FALSE?

Tammy is a member of the Board of Directors of Moon Corporation. Her husband is the manager of a large division. What type of director is Tammy?

Describe the "stakeholder" model of corporate governance.

Describe the main requirements of the Sarbanes-Oxley Act of 2002.

Which of the following statements is FALSE?

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $62.04 per share. The following are the week-ending stock prices that occurred during the quarter: What is the most likely date on which the stock options were awarded?

What is corporate governance?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

What are some of the negative effects of increasing the sensitivity of managerial pay to firm performance?

How does a pyramid structure work?

Which of the following is an example of an agency problem?

Which of the following was not a finding of the Cadbury Commission?

The Sarbanes-Oxley Act requires all of the following EXCEPT ________.

Which of the following statements is FALSE?

Directors who are not employees, former employees, or family members of employees and who do not have existing or potential business relationships with the firm are called ________.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Filters