Corporate Finance
Mock Exam
Course Introduction
Corporate Finance explores the fundamental concepts and analytical tools necessary for making sound financial decisions within corporations. The course covers topics such as capital budgeting, capital structure, risk management, valuation of assets and firms, cost of capital, dividend policy, and financial planning. Emphasis is placed on understanding how financial managers evaluate investment opportunities, manage resources, and balance risk and return to maximize shareholder value. Real-world case studies and quantitative models are used to illustrate financial strategies and decision-making in a corporate setting.
Recommended Textbook
Fundamentals of Corporate Finance 4th Edition Jonathan Berk
Available Study Resources on Quizplus
26 Chapters
2360 Verified Questions
2360 Flashcards
Source URL: https://quizplus.com/study-set/3511
Page 2
Chapter 1: Corporate Finance and the Financial Manager
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/69768
Sample Questions
Q1) How do the shareholders of most corporations exercise their control of that corporation?
A) by voting on issues that concern them
B) by electing members of a board of directors
C) by vetting the decisions of the board of directors
D) by providing oversight of the day-to-day running of the corporation
Answer: B
Q2) What is the most common type of firm in the United States and the world?
A) sole proprietorships
B) partnerships
C) limited partnerships
D) corporations
Answer: A
Q3) Using the above information, how much would you pay for a share of BHP Billiton stock?
A) $41.91
B) $41.93
C) $41.65
D) $41.59
Answer: B
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Introduction to Financial Statement Analysis
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/69767
Sample Questions
Q1) How does a firm select the dates for preparation of its income statement?
Answer: The income statement is prepared on the fiscal closing date for the accounts of a firm that may or may not coincide with the calendar year-end of December 31st. Typically the income statement spans the flow between two adjacent balance sheets.
Q2) Which of the following is NOT an operating expense?
A) interest expense
B) depreciation and amortization
C) selling, general, and administrative expenses
D) research and development
Answer: A
Q3) In 2009, an agricultural company introduced a new cropping process which reduced the cost of growing some of its crops. If sales in 2008 and 2009 were steady at $30 million, but the gross margin increased from 2.8% to 3.9% between those years, by what amount was the cost of sales reduced?
A) $330,000
B) $660,000
C) $264,000
D) $462,000
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Time Value of Money: an Introduction
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/69766
Sample Questions
Q1) If $432 invested today yields $450 in a year's time, what is the discount factor?
A) 0.10
B) 0.96
C) 1.96
D) 1.92
Answer: B
Q2) "If equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets." What do we call the above statement?
A) The Net Present Value rule
B) The Law of One Price
C) The Valuation Principle
D) The Time Value of Money
Answer: B
Q3) How does arbitrage help the Law of One Price?
Answer: Any arbitrage opportunity will exploit any mispricing to restore the Law of One Price.
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Time Value of Money: Valuing Cash Flow
Streams
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/69765
Sample Questions
Q1) Martin wants to provide money in his will for an annual bequest to whichever of his living relatives is oldest. That bequest will provide $4000 in the first year, and will grow by 7% per year, forever. If the interest rate is 9%, how much must Martin provide to fund this bequest?
A) $100,000.00
B) $160,000.00
C) $200,000.00
D) $240,000.00
Q2) A perpetuity will pay $900 per year, starting five years after the perpetuity is purchased. What is the present value (PV) of this perpetuity on the date that it is purchased, given that the interest rate is 11%?
A) $2695
B) $4312
C) $5390
D) $3234
Q3) The present value (PV) of a stream of cash flows is just the sum of the present values of each individual cash flow.
A)True
B)False
Page 6
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Interest Rates
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/69764
Sample Questions
Q1) What care, if any, should be taken when cash flows occur in periodicities that are shorter than a year (e.g., quarterly or monthly cash flows)?
Q2) A bank offers an account with an APR of 5.8% and an EAR of 5.88%. How does the bank compound interest for this account?
A) weekly compounding
B) monthly compounding
C) semiannual compounding
D) annual compounding
Q3) Two years ago you purchased a new SUV. You financed your SUV for 60 months (with payments made at the end of the month) with a loan at 6.15% APR. Your monthly payments are $388.05 and you have just made your 24th monthly payment on your SUV. Assuming that you have made all of the first 24 payments on time, then the outstanding principal balance on your SUV loan is closest to ________.
A) $14,000
B) $12,727
C) $15,273
D) $17,818
Q4) How are interest and return of principal handled in an amortizing loan payment?
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Bonds
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/69763
Sample Questions
Q1) A bond has five years to maturity, a $1000 face value, and a 5.5% coupon rate with annual coupons. What is its yield to maturity if it is currently trading at $846.11?
A) 11.41%
B) 13.31%
C) 7.61%
D) 9.51%
Q2) An investor holds a Ford bond with a face value of $5000, a coupon rate of 8.5%, and semiannual payments that matures on January 15, 2029. How much will the investor receive on January 15, 2029?
A) $2606.25
B) $5000.00
C) $5212.50
D) $5425.00
Q3) The above information is for a corporate bond issued by the Markel Corporation. What sort of bond is this?
A) a high-risk bond
B) an investment grade bond
C) a speculative bond
D) a high-yield bond
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Stock Valuation
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/69762
Sample Questions
Q1) The Busby Corporation had a share price at the start of the year of $26.10, paid a dividend of $0.59 at the end of the year, and had a share price of $29.50 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period?
A) 14%
B) 13%
C) 12%
D) 15%
Q2) Matilda Industries pays a dividend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?
A) $14.00
B) $18.66
C) $23.33
D) $29.16
Q3) Stocks that do not pay a dividend must have a value of $0.
A)True
B)False
Q4) How can the dividend-discount model handle changing growth rates?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Investment Decision Rules
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/69761
Sample Questions
Q1) Preference for cash today versus cash in the future in part determines net present value (NPV).
A)True
B)False
Q2) You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in twelve years. If the bond is currently selling for $496.97, then the internal rate of return (IRR) for investing in this bond is closest to ________.
A) 5.0%
B) 7.1%
C) 6.0%
D) 8.2%
Q3) Should personal preferences for cash today versus cash tomorrow play a role in the net present value (NPV) decision-making process?
Q4) Net present value (NPV) is usefully supplemented by internal rate of return (IRR), since IRR gives a good indication of the sensitivity of any decision made to changes in the discount rate.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Fundamentals of Capital Budgeting
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/69760
Sample Questions
Q1) If a business owner is using the extra space at home for his business, does it imply a zero opportunity cost for the space?
Q2) Ford Motor Company is considering launching a new line of hybrid diesel-electric SUVs. The heavy advertising expenses associated with the new SUV launch would generate operating losses of $30 million next year. Without the new SUV, Ford expects to earn pre-tax income of $80 million from operations next year. Ford pays a 30% tax rate on its pre-tax income. The amount that Ford Motor Company owes in taxes next year with the launch of the new SUV is closest to ________.
A) $15.0 million
B) $9.0 million
C) $33.0 million
D) $24.0 million
Q3) The cash flow effect from a change in Net Working Capital is always equal in size and opposite in sign to the changes in Net Working Capital.
A)True
B)False
Q4) How are the taxes paid under MACRS different from that paid under straight-line depreciation?
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Stock Valuation: a Second Look
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/69759
Sample Questions
Q1) An investor estimates the value of a firm which manufactures cookware by examining the cash flows of similar firms. Which of the following is assumed to be the same for these firms?
A) P/E
B) annual growth rates
C) payout rates
D) all of the above
Q2) Which of the following is the best statement of the efficient markets hypothesis?
A) Investors with information that a stock had a positive net present value (NPV) will buy it, while investors with information that a stock had a negative net present value (NPV) will sell it.
B) Investor's decisions are dependent on complete current information of a firm's cash flows and accurate predictions of future cash flows.
C) Competition between investors works to make the net present value (NPV) of all trading opportunities zero.
D) A share's price is the aggregate of the information of many investors.
Q3) Which is the best valuation technique when using comparables?
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Risk and Return in Capital Markets
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/69758
Sample Questions
Q1) The risk that inflation rates are likely to increase in the next year is an example of common risk.
A)True
B)False
Q2) Which of the following statements is FALSE?
A) Expected return should rise proportionately with volatility.
B) Investors would not choose to hold a portfolio that is more volatile unless they expected to earn a higher return.
C) Smaller stocks have lower volatility than larger stocks.
D) The largest stocks are typically more volatile than a portfolio of large stocks.
Q3) The average annual return over the period 1926-2009 for the S&P 500 is 12.8%, and the standard deviation of returns is 21.4%. Based on these numbers, what is a 67% confidence interval for 2010 returns?
A) -1.3%, 20.5%
B) -8.6%, 34.2%
C) -25.8%, 54.7%
D) -25.8%, 47.9%
Q4) Is volatility a reasonable measure of risk when evaluating large portfolios?
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Systematic Risk and the Equity Risk Premium
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/69757
Sample Questions
Q1) Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a(n) 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 10% expected return and a 20% volatility. Assume that the ETF you invested in returns -10%. Then the realized return on your investment is closest to ________.
A) -18%
B) -10%
C) -23%
D) -26%
Q2) While we are using historic return to estimate a stock's beta, why can't we use historic data to forecast the expected return for the stock?
Q3) Stocks have both diversifiable risk and undiversifiable risk, but only diversifiable risk is rewarded with higher expected returns.
A)True
B)False
Q4) What is the lowest risk possible by selecting two stocks that are perfectly negatively correlated?
Q5) Is it possible for a stock to have high total risk but low systematic risk?
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: The Cost of Capital
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/69756
Sample Questions
Q1) Should a firm with high retained earnings have a lower cost of equity?
Q2) Your estimate of the market risk premium is 9%. The risk-free rate of return is 4.1% and General Motors has a beta of 1.8. What is General Motors' cost of equity capital?
A) 20.3%
B) 18.3%
C) 19.3%
D) 21.3%
Q3) A firm has a capital structure with $75 million in equity and $45 million of debt. The cost of equity capital is 10% and the pretax cost of debt is 7%. If the marginal tax rate of the firm is 40%, compute the weighted average cost of capital of the firm.
A) 6.7%
B) 7.0%
C) 7.8%
D) 8.6%
Q4) What type of adjustment to debt is in practice?
Q5) The WACC does not depend on the risk of a company's line of business.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Raising Equity Capital
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/69755
Sample Questions
Q1) You founded your own firm three years ago. You initially contributed $200,000 of your own money and in return you received 2 million shares of stock. Since then, you have sold an additional 1 million shares of stock to angel investors. You are now considering raising capital from a venture capital firm. This venture capital firm would invest $5 million and would receive 4 million newly issued shares in return. After the venture capitalist's investment, the post-money valuation of your shares is closest to
A) $2.5 million
B) $6.3 million
C) $2.0 million
D) $1.3 million
Q2) In a best-efforts IPO, the underwriter guarantees that all stock will be sold.
A)True
B)False
Q3) Which of the following is an activity typically taken by an underwriter during an IPO of a company?
A) helping the company with all necessary filings
B) determining the offer price
C) marketing the IPO
D) all of the above
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Debt Financing
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/69754
Sample Questions
Q1) Which of the following statements about bonds that are both convertible and callable is NOT true?
A) If these bonds are called by the issuer, the holder can choose to convert them rather than let them be called.
B) Prior to maturity, the value of such bonds will be greater than the shares of stock that bond can be converted into.
C) The decision to be made by the bondholders when the bonds are called is the same as they would have to make at maturity.
D) By calling the bonds, the issuer can force bondholders to decide to convert at a time of the issuer's choice.
Q2) A company issues a callable (at par) 20-year, 5% coupon bond with annual coupon payments. The bond can be called at par in one year after release or any time after that on a coupon payment date. On release, it has a price of $102 per $100 of face value. What is the yield to worst of this bond when it is released?
A) 2.94%
B) 4.84%
C) 5.60%
D) 6.66%
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Capital Structure
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/69753
Sample Questions
Q1) Which of the following statements is TRUE?
A) Holding cash has the opposite effect of leverage on risk and return.
B) We use the market value of a firm's net debt when computing its WACC and unlevered beta to measure the cost of capital and market risk of the firm's business assets.
C) Since the WACC does not change with the use of leverage, the value of a firm's free cash flow evaluated using the WACC does not change, and so the enterprise value of the firm does not depend on its financing choices.
D) Even if a firm's capital structure is more complex, the WACC is calculated by computing the weighted average cost of only the firm's debt and equity.
Q2) Differences in the magnitude of financial distress costs and volatility of cash flows across industries do not impact the choice of leverage.
A)True
B)False
Q3) What are some implications of market imperfections?
Q4) What is the capital structure of a firm?
Q5) What are direct costs of financial distress?
Q6) What are the issues in determining the optimal leverage for a firm?
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Payout Policy
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/69752
Sample Questions
Q1) The firm will pay the dividend to all shareholders who are registered owners on a specific date, set by the board, called the ________.
A) declaration date
B) record date
C) distribution date
D) ex-dividend date
Q2) The WTC Corporation will pay a constant dividend of $4.20 per share, per year, in perpetuity. If all investors pay a 20% tax on dividends, there is no capital gains tax, and the cost of capital for investing in WTC stock is 14%, what is the price for a share of WTC stock?
A) $24.00
B) $19.20
C) $28.80
D) $48.00
Q3) With perfect capital markets, an open market repurchase increases the stock price as the number of outstanding shares is decreased.
A)True
B)False
Q4) What are the ways in which a firm can retain its free cash flow?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Financial Modeling and Pro Forma Analysis
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/69751
Sample Questions
Q1) Given the following data for a given period, compute the free cash flow to the firm:
Net Income = $5,000
After-tax Interest Expense = $500
Depreciation = $500
Increase in NWC = $1,000
Capital Expenditures = $2,000
A) $3,000
B) $3,500
C) $3,700
D) $3,900
Q2) ________ is the maximum growth rate a firm can achieve without resorting to external financing.
A) Return on equity
B) Sustainable growth rate
C) Retention rate
D) Internal growth rate
Q3) Internal growth rate indicates whether a planned investment will increase or decrease firm value.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Working Capital Management
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/69750
Sample Questions
Q1) Can a firm's cash cycle be longer than a firm's operating cycle?
Q2) Which of the following is a component of disbursement float but not a component of collection float?
A) availability float
B) mail float
C) processing float
D) check-clearing float
Q3) Which of the following are the "5-C's of Credit"?
A) Character, Capacity, Compensation, Collateral, Conditions
B) Character, Cash, Credit, Collateral, Collectability
C) Character, Capacity, Capital, Collateral, Conditions
D) Cash, Capacity, Capital, Compensation, Collectability
Q4) Working capital management involves the management of all of a firm's assets and liabilities.
A)True
B)False
Q5) Collection float is the amount of time it takes for a firm to be able to use funds after a customer has paid for its goods.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Short-Term Financial Planning
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/69749
Sample Questions
Q1) Which of the following companies is most likely to have the greatest need for short-term financial planning?
A) a company that mines sand for use in glass-making
B) a company that manufacturers condiments such as ketchup
C) a company that produces advertisements for roadside billboards
D) a company that provides catering services for weddings
Q2) Which of the following best describes a conservative financing policy?
A) financing part or all of the permanent working capital with short-term debt
B) financing part or all of the permanent working capital with long-term debt
C) financing part or all of the temporary working capital with short-term debt
D) financing part or all of the temporary working capital with long-term debt
Q3) Which short-term financing policy states that short-term cash needs should be financed with short-term debt and long-term cash needs should be financed with long-term sources of funds?
A) aggressive policy
B) evergreen credit
C) matching principle
D) conservatism principle
Q4) What do we understand by negative cash flow shocks?
Q5) What are loan origination fees and what effect does it have on the loan?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Option Applications and Corporate Finance
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/69748
Sample Questions
Q1) Using an option to reduce the risk of a portfolio is called ________, while using options to bet on the direction of the market or an asset is called ________.
A) hedging, speculation
B) hedging, verification
C) verification, hedging
D) speculation, hedging
Q2) You have shorted a call option on WSJ stock with a strike price of $50. The option will expire in exactly six months. If the stock is trading at $45 in three month, what will you owe for each share in the contract?
A) $0
B) $50
C) $60
D) $10
Q3) Consider the following equation: C = P + S - PV(K) - PV(Div)
In this equation, what does the term C represent?
A) the value of the call option
B) the stock's current price
C) the payoff of a zero-coupon bond
D) the strike price of the option
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
47 Verified Questions
47 Flashcards
Source URL: https://quizplus.com/quiz/69747
Sample Questions
Q1) Consider a case in which existing shareholders do not have to invest time and effort, but still participate in the gains from a takeover, while the bidder who puts in the time and effort is forced to give up substantial profits. This situation is called ________.
A) the free rider problem
B) a toehold
C) a leveraged buyout
D) a freezeout merger
Q2) Which of the following statements is FALSE?
A) Chief among the costs associated with size is that larger firms are more difficult to manage.
B) For most investors an investment in the stock market is a zero-NPV investment.
C) Tax savings from operating profits are by far the most common justification that bidders give for the premium they pay for a target.
D) An acquirer might be able to add economic value, as a result of an acquisition, that an individual investor cannot add.
Q3) What is a white knight?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 23: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/69746
Sample Questions
Q1) The implied foreign interest rate computed using spot and forward exchange rates may be lower than the actual foreign interest rate if the foreign country has a high
A) default risk
B) inflation risk
C) depreciation risk
D) none of the above
Q2) You have just landed in Paris with $750 in your wallet. At the foreign exchange booth, you see that euros are being quoted at $1.34/ . How many euros can you exchange for your $750?
A) 1,005 euros
B) 559.70 euros
C) 750.00 euros
D) 179.56 euros
Q3) Multinational firms often use currency forward contracts and currency options to hedge foreign exchange rate risk.
A)True
B)False
Q4) What are internationally segmented capital markets?
Q5) What is foreign exchange market?
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Leasing
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/69745
Sample Questions
Q1) Which of the following discount rates should be used for the lease versus borrow decision?
A) the risk-free rate of interest
B) the company's cost of borrowing
C) the company's after-tax cost of borrowing
D) the company's weighted average cost of capital
Q2) Which of the following statements is FALSE?
A) Because we are getting the entire asset when we purchase it with the loan, the loan payments are higher than the lease payments.
B) In a perfect market, the cost of leasing and then purchasing the asset is equivalent to the cost of borrowing to purchase the asset.
C) With a lease we are financing the entire cost of the asset; with a standard loan we are financing only the cost of the economic depreciation of the asset during its life.
D) The amount of the lease payment will depend on the purchase price, the residual value, and the appropriate discount rate for the cash flows.
Q3) In the chapter, the lease versus buy decision was called an unfair comparison. Why? What is the correct comparison?
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Insurance and Risk Management
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/69744
Sample Questions
Q1) Insurance that compensates for the loss or unavoidable absence of crucial employees in the firm is called ________.
A) key personnel insurance
B) business liability insurance
C) property insurance
D) business interruption insurance
Q2) If your firm is uninsured, the NPV of implementing the new safety policies is closest to ________.
A) $2.25 million
B) -$.25 million
C) $2.5 million
D) $2.15 million
Q3) What are some of the disadvantages of long-term supply contracts?
Q4) Insurance for large risks that cannot be well diversified has a(n) ________, which increases its cost.
A) positive beta
B) moral hazard clause
C) negative beta
D) actuarially-biased risk
Q5) What is the actuarially fair cost of full insurance?
Page 27
To view all questions and flashcards with answers, click on the resource link above.
Chapter 26: Corporate Governance
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/69743
Sample Questions
Q1) Describe the main requirements of the Sarbanes-Oxley Act of 2002.
Q2) Which of the following statements is FALSE?
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.
Q3) What is the role of takeovers in corporate governance?
Q4) What is corporate governance?
Q5) How does a pyramid structure work?
To view all questions and flashcards with answers, click on the resource link above.
Page 28