Question 1

Which one of the following statements is TRUE?

Accepted Answer

A)  companies with interlocking boards of directors have directors that serve on both boards. 
B)  the more members of a board of directors, the better its function. 
C)  a company has an interlocking board of directors if the ceo also serves as the chairman of the board of directors. 
D)  a company whose board members are elected in staggered terms is said to be an interlocking board of directors. 
E)  a shareholder-friendly charter will make it harder for a company to be acquired. 
A)  companies with interlocking boards of directors have directors that serve on both boards. 
B)  the more members of a board of directors, the better its function. 
C)  a company has an interlocking board of directors if the ceo also serves as the chairman of the board of directors. 
D)  a company whose board members are elected in staggered terms is said to be an interlocking board of directors. 
E)  a shareholder-friendly charter will make it harder for a company to be acquired.

Question 2

Which one of the following statements is TRUE?

Accepted Answer

A)  when lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake. 
B)  an agency relationship is when a principal works for an agent. 
C)  in an agency relationship, the agent delegates authority to the principal. 
D)  firms borrowing money have greater flexibility to use that money when there are debt covenants. 
E)  when lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's wacc can decrease. 
A)  when lenders protect themselves from the risk of asset switching, the borrowing firms will be limited in the projects they can profitably undertake. 
B)  an agency relationship is when a principal works for an agent. 
C)  in an agency relationship, the agent delegates authority to the principal. 
D)  firms borrowing money have greater flexibility to use that money when there are debt covenants. 
E)  when lenders protect themselves from the risk of asset switching by raising the interest rate, the firm's wacc can decrease.

Question 3

Which one of the following statements is TRUE?

Accepted Answer

A)  an example of an agency cost is when an outside investor is only willing to pay less for stockbecause she thinks the original owner will consume too many perquisites. 
B)  an example of an agency cost is when the board of directors pays a dividend to shareholders. 
C)  an example of an agency cost is when an attorney hires an expert witness for a trial. 
D)  the commission required by the federal housing agency for a small business loan is an example ofan agency cost. 
E)  an example of an agency cost is the salary of the agent hired to work for the principal. 
A)  an example of an agency cost is when an outside investor is only willing to pay less for stockbecause she thinks the original owner will consume too many perquisites. 
B)  an example of an agency cost is when the board of directors pays a dividend to shareholders. 
C)  an example of an agency cost is when an attorney hires an expert witness for a trial. 
D)  the commission required by the federal housing agency for a small business loan is an example ofan agency cost. 
E)  an example of an agency cost is the salary of the agent hired to work for the principal.

Question 4

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 5

Which one of the following statements is TRUE?

Accepted Answer

A)  a targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders. 
B)  an example of asset switching is an option to exchange one piece of real estate for another. 
C)  a shareholder-friendly charter will make it harder for a company to be acquired. 
D)  a targeted share repurchase can be used to encourage a hostile takeover. 
E)  anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price. 
A)  a targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders. 
B)  an example of asset switching is an option to exchange one piece of real estate for another. 
C)  a shareholder-friendly charter will make it harder for a company to be acquired. 
D)  a targeted share repurchase can be used to encourage a hostile takeover. 
E)  anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price.

Question 6

Which one of the following statements is TRUE?

Accepted Answer

A)  a corporate golf club membership is an example of a nonpecuniary benefit 
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)  a corporate golf club membership is an example of a nonpecuniary benefit 
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 7

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 is an example of asset switching or bait and switch. 
B)  what the company does with the funds once it raises them isn't the business of the debtholders. 
C)  this will result in an increase in the value of the debt because the company is riskier. 
D)  all of the above. 
E)  none of the above. 
A)  this is an example of asset switching or bait and switch. 
B)  what the company does with the funds once it raises them isn't the business of the debtholders. 
C)  this will result in an increase in the value of the debt because the company is riskier. 
D)  all of the above. 
E)  none of the above.

Question 8

Which one of the following statements is TRUE?

Accepted Answer

A)  a shareholder-friendly charter will make it easier for a company to be acquired. 
B)  a company whose board members are elected in staggered terms is said to be an interlocking board of directors. 
C)  a shareholder-friendly charter will make it easier for shareholders to meet with the ceo if they have concerns. 
D)  a targeted share repurchase can be used to encourage a hostile takeover. 
E)  an example of an agency cost is when the board of directors pays a dividend to shareholders. 
A)  a shareholder-friendly charter will make it easier for a company to be acquired. 
B)  a company whose board members are elected in staggered terms is said to be an interlocking board of directors. 
C)  a shareholder-friendly charter will make it easier for shareholders to meet with the ceo if they have concerns. 
D)  a targeted share repurchase can be used to encourage a hostile takeover. 
E)  an example of an agency cost is when the board of directors pays a dividend to shareholders.

Question 9

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 10

Which one of the following statements is TRUE?

Accepted Answer

A)  asset switching occurs when a company borrows money for a safe investment but uses it for a risky investment. 
B)  an example of an agency cost is when the board of directors pays a dividend to shareholders. 
C)  an example of an agency cost is when an attorney hires an expert witness for a trial. 
D)  the commission required by the federal housing agency for a small business loan is an example of an agency cost. 
E)  an example of an agency cost is the salary of the agent hired to work for the principal. 
A)  asset switching occurs when a company borrows money for a safe investment but uses it for a risky investment. 
B)  an example of an agency cost is when the board of directors pays a dividend to shareholders. 
C)  an example of an agency cost is when an attorney hires an expert witness for a trial. 
D)  the commission required by the federal housing agency for a small business loan is an example of an agency cost. 
E)  an example of an agency cost is the salary of the agent hired to work for the principal.

Question 11

Which one of the following statements is TRUE?

Accepted Answer

A)  a shareholder rights provision discourages takeovers because the acquiring company will suffer dilution. 
B)  a company has an interlocking board of directors if the ceo also serves as the chairman of the board of directors. 
C)  a company whose board members are elected in staggered terms is said to have an interlocking board of directors. 
D)  shareholders want to prevent takeovers because they don't want the company purchased out from under them. 
E)  a classified board is one in which the board members serve anonymously. 
A)  a shareholder rights provision discourages takeovers because the acquiring company will suffer dilution. 
B)  a company has an interlocking board of directors if the ceo also serves as the chairman of the board of directors. 
C)  a company whose board members are elected in staggered terms is said to have an interlocking board of directors. 
D)  shareholders want to prevent takeovers because they don't want the company purchased out from under them. 
E)  a classified board is one in which the board members serve anonymously.

Exam 10: Corporate Governance

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?

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?

An Overview of Financial Management and the Financial Environment

Risk and Return-Part I

Risk and Return-Part II

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Determining the Cost of Capital

Capital Budgeting: Decision Criteria

Capital Budgeting-Estimating Cash Flows and Analyzing Risk

Real Options

Distributions to Shareholders-Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings-Investment Banking: and Financial Restructuring

Lease Financing

Hybrid Financing Preferred Stock-Warrants and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Other Topics in Working Capital Management

Enterprise Risk Management

Bankruptcy-Reorganization and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Basic Financial Tools: A review

Pension Plan Management

Financial Management in Not for Profit Businesses

Filters