Course Introduction
Managerial Finance Practice Questions
Managerial Finance explores the principles and practices of financial management within organizations, focusing on decision-making processes that drive value creation. The course covers topics such as financial analysis, planning and forecasting, capital budgeting, risk and return assessment, cost of capital, working capital management, and short-term and long-term financing strategies. Emphasizing both theoretical foundations and practical applications, students learn how to evaluate financial information, allocate resources efficiently, and develop strategies to achieve organizational goals in dynamic business environments.
Recommended Textbook Principles of Corporate Finance 11th Edition by Richard A Brealey
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Mr.Bird has $100 income this year and zero income next year.The market interest rate is 10% per year.Mr.Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year.Suppose Mr.Bird consumes $30 this year and invests in the project.What will be his consumption next year?
A)$80
B)$82
C)$100
D)$102
Answer: D
Q2) Ms.Newcastle has $60,000 income this year and $40,000 next year.The market interest rate is 10% per year.Suppose Ms.Newcastle wishes to consume $62,000 next year.What will be her consumption this year?
A)$19,000
B)$40,000
C)$60,000
D)$70,000
Answer: B
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Chapter 2: How to Calculate Present Values
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Sample Questions
Q1) If you invest $100 at 12% APR for three years,how much would you have at the end of three years using simple interest?
A)$136.00
B)$140.49
C)$240.18
D)$187.13
Answer: A
Q2) A perpetuity is defined as a sequence of:
A)equal cash flows occurring at equal intervals of time for a specific number of periods.
B)equal cash flows occurring at equal intervals of time forever.
C)unequal cash flows occurring at equal intervals of time forever.
D)unequal cash flows occurring at equal intervals of time for a specific number of periods.
Answer: B
Q3) The rate of return on any perpetuity is equal to its cash flow multiplied by its price.
A)True
B)False
Answer: False
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4
Chapter 3: Valuing Bonds
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Sample Questions
Q1) Which of the following bonds has the longest duration?
A)five-year coupon bond
B)five-year,zero-coupon bond
C)ten-year coupon bond
D)ten-year,zero-coupon bond
Answer: D
Q2) Briefly explain what is meant by the term structure of interest rates.
Answer: Structure of interest rates is the plot of spot interest rates on the y-axis and time on the x-axis.It is closely related to the yield curve.It shows how interest rates and maturity are related.Economists have developed several theories to explain the shape of the yield curve.
Q3) Define the term real interest rate.
Answer: The real interest rate is the nominal interest rate adjusted for inflation.We do not observe it directly (except for the case of U.S.Treasury TIPS).The relationship between the two is given by: 1 + r<sub>nominal</sub> = (1 + r<sub>real</sub><sub> rate</sub>)(1 + inflation rate).(An approximate formula that works for small values is: r<sub>nominal</sub> = r<sub>real</sub><sub> rate</sub> + inflation rate.)
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Chapter 4: The Value of Common Stocks
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Sample Questions
Q1) Briefly explain the major types of exchanges prevalent in the U.S.
Q2) Summer Co.expects to pay a dividend of $4.00 per share-one year from now-out of earnings of $7.50 per share.If the required rate of return on the stock is 15% and its dividends are growing at a constant rate of 10% per year,calculate the present value of growth opportunities for the stock (PVGO).
A)$80
B)$30
C)$50
D)$26
Q3) The exchange-traded fund (ETF)that tracks the Nasdaq 100 index is called:
A)SPDR.
B)DIAMONDS.
C)QQQQ.
D)NDAQQ.
Q4) The New York Stock Exchange is the only stock market in the U.S.
A)True
B)False
Q5) Discuss the general principle at work in valuing a common stock.
Q6) Explain the term secondary market.
Q7) Briefly explain the term market capitalization rate.
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Chapter 5: Net Present Value and Other Investment Criteria
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Sample Questions
Q1) One can use the profitability index most usefully for which situation?
A)when capital rationing exists
B)evaluation of exceptionally long-term projects
C)evaluation of non-normal projects
D)when a project has unusually high cash-flow uncertainty
Q2) If an investment project (normal project)has an IRR equal to the cost of capital,the NPV for that project is:
A)positive.
B)negative.
C)zero.
D)unable to determine.
Q3) The survey of CFOs indicates that the NPV method is always,or almost always,used for evaluating investment projects by approximately:
A)12% of firms.
B)20% of firms.
C)57% of firms.
D)75% of firms.
Q4) Briefly explain the term hard rationing.
Q5) Discuss some of the disadvantages of the payback rule.
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Chapter 6: Making Investment Decisions With the Net
Present Value Rule
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Q1) Working capital is one of the most common sources of mistakes in estimating project cash flows.
A)True
B)False
Q2) The real interest rate is 3.0% and the inflation rate is 5.0%.What is the nominal interest rate?
A)3.00%
B)5.00%
C)8.15%
D)2.00%
Q3) What are some of the additional factors that an analyst should consider while estimating cash flows in foreign countries and currencies?
Q4) If the discount rate is stated in real terms then-in order to calculate the NPV in a consistent manner-the project requires that:
A)cash flows be estimated in nominal terms.
B)cash flows be estimated in real terms.
C)accounting income be used.
D)cash flows be estimated including future inflation.
Q5) Briefly explain how the cost of excess capacity is taken into consideration.
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Chapter 7: Introduction to Risk and Return
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Sample Questions
Q1) The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.
A)True
B)False
Q2) The type of the risk that can be eliminated by diversification is called:
A)market risk
B)unique risk
C)interest rate risk
D)default risk
Q3) The portfolio risk that cannot be eliminated by diversification is called unique risk.
A)True
B)False
Q4) Which portfolio had the highest standard deviation during the period between 1900 and 2011?
A)Common stocks
B)Government bonds
C)Treasury bills
D)None of the answers
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Page 9
Chapter 8: Portfolio Theory and the Capital Asset Pricing Model
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Sample Questions
Q1) The distribution of daily returns for stocks is more closely related to the lognormal distribution than the normal distribution.
A)True
B)False
Q2) Almost all tests of the CAPM have confirmed that it explains stock returns,especially for high-beta stocks.
A)True
B)False
Q3) Briefly explain the term security market line.
Q4) If the covariance of Stock A with Stock B is -100,what is the covariance of Stock B with Stock A?
A)+100
B)-100
C)1/100
D)need additional information
Q5) Briefly explain the Fama-French three-factor model.
Q6) Briefly explain the term market portfolio.
10
Q7) Briefly explain the effect of introducing borrowing and lending at the risk-free rate on the efficient portfolios.
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Chapter 9: Risk and the Cost of Capital
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Q1) The cost of capital is the same as the cost of equity for firms that are financed:
A)entirely by debt.
B)by both debt and equity.
C)entirely by equity.
D)by 50% equity and 50% debt.
Q2) One calculates the weighted average cost of capital (WACC),on an after-tax basis,as:
WACC = (r<sub>D</sub>)(1 - T<sub>C</sub> )(D/V)+ (r<sub>E</sub>)(E/V),where: V = D + E.
A)True
B)False
Q3) Briefly explain the difference between company and project cost of capital.
Q4) The company cost of capital,when the firm has both debt and equity financing,is called the:
A)cost of debt.
B)cost of equity.
C)the weighted average cost of capital (WACC).
D)the return on equity (ROE).
Q5) Briefly describe the factors that determine asset betas.
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Chapter 10: Project Analysis
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Sample Questions
Q1) A project requires an initial investment in equipment of $90,000 and then requires an initial investment in working capital of $10,000 (at t = 0).You expect the project to produce sales revenue of $120,000 per year for three years.You estimate manufacturing costs at 60% of revenues.(Assume all revenues and costs occur at year-end,i.e.,t = 1,t = 2,and t = 3.)The equipment depreciates using straight-line depreciation over three years.At the end of the project,the firm can sell the equipment for $10,000 and also recover the investment in net working capital.The corporate tax rate is 30% and the cost of capital is 15%.What is the NPV of the project if the revenues were higher by 10% and the costs were 65% of the revenues?
A)$8,443
B)$964
C)$5,566
D)$4,840
Q2) Briefly discuss various real options associated with capital budgeting projects.
Q3) In most cases the present value break-even quantity is higher than the accounting break-even quantity.
A)True
B)False
Q4) Explain the usefulness of decision trees in project analysis.
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Chapter 11: Investment, Strategy, and Economic Rents
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Sample Questions
Q1) Which of the following is NOT one of Michael Porter's five forces?
A)Average years of experience of CEO
B)Threat of substitutes
C)Rivalry among existing competitors
D)Bargaining power of both suppliers and customers
Q2) Explain the economic concept that reduces firms' chances of earning economic rents.
Q3) While evaluating a project,an analyst should consider its effect upon the sales of the firm's existing products.
A)True
B)False
Q4) Briefly explain the concept of economic rent.
Q5) The total NPV of a new plant is equal to the NPV of the new plant plus the change in the present value of existing plants due to the impact of the new plant.
A)True
B)False
Q6) In a competitive market,most firms can earn high economic rents.
A)True
B)False
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Chapter 12: Agency Problems, Compensation, and Performance Measurement
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Q1) The main idea behind EVA is a new concept recently introduced into finance.
A)True
B)False
Q2) Stock option grants are generally a more appropriate form of compensation for lower-level managers than for higher-level managers.
A)True
B)False
Q3) A firm has an average investment of $10,000 during the year.During the same period,the firm generates after-tax income of $1,000.
If the cost of capital is 15%,what is the net return on the investment?
A)15%
B)-5%
C)10%
D)5%
Q4) The following are agency problems in capital budgeting except:
A)empire building.
B)entrenching investments.
C)avoiding risks.
D)accepting all positive NPV projects.
14
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Chapter 13: Efficient Markets and Behavioral Finance
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Sample Questions
Q1) Strong-form efficiency implies that mutual fund managers should:
A)buy the index that maximizes diversification and minimizes the cost of managing portfolios.
B)actively seek underperforming stocks and buy them.
C)generally earn superior returns each year.
D)attempt to earn superior returns by using technical analysis.
Q2) If markets are efficient,which of the following investors should achieve superior returns over time?
A)Investors who choose stocks by throwing darts at a list of stocks in the financial pages of a newspaper
B)Analysts who spend considerable time evaluating the best stocks to buy
C)Mutual fund managers who manage other people's money for a living
D)None of the options
Q3) Generally,a firm is able to find positive-NPV opportunities among its: i.financing decisions; II)capital investment decisions; III)short-term borrowing decisions
A)I only
B)I and III only
C)III only
D)II only
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Page 15
Chapter 14: An Overview of Corporate Financing
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Sample Questions
Q1) Which of the following instruments gives the owner the right to purchase securities directly from the firm at a fixed price during a specified period of time?
A)warrant
B)Treasury stock
C)subordinated debt
D)short-term bank loan
Q2) Recently,which of the following sources of funds has played the greatest role in the financing of U.S.nonfinancial firms?
A)internal funds
B)net equity issues
C)net borrowing
D)all of the sources were approximately the same
Q3) The following functions,provided by financial intermediaries,enable the smooth functioning of the economy:
i.processing of payments; II)borrowing and lending; III)pooling risks
A)I only
B)I and II only
C)I,II,and III
D)III only
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Chapter 15: How Corporations Issue Securities
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Sample Questions
Q1) The winner's curse is reduced in a(an):
A)discriminatory auction.
B)uniform-price auction.
C)English auction.
D)winner-take-all auction.
Q2) Generally,venture capital funds are organized as:
i.proprietorships; II)corporations; III)limited private partnerships
A)I only
B)II only
C)III only
D)I and II only
Q3) Image Storage Corporation has 1,000,000 shares outstanding.It wishes to issue 500,000 new shares using a (North American)rights issue.If the current stock price is $50 and the subscription price is $47/share,what is the value of a right?
A)$0.40/right
B)$5.00/right
C)$2.50/right
D)$1.00/right
Q4) Explain the term winner's curse.
Q5) What are some of the costs to a firm associated with issuing new securities?
Page 17
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Chapter 16: Payout Policy
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Sample Questions
Q1) Generally,investors interpret the announcement of a decrease in dividends as:
A)bad news and the stock price drops.
B)good news and the stock price increases.
C)a nonevent and does not affect the stock prices.
D)very good news and the stock price jumps up.
Q2) A Dutch auction is the same as a(an):
A)discriminatory price auction.
B)uniform price auction.
C)English auction.
D)share repurchase.
Q3) Most firms have long-run target dividend payout ratios.
A)True
B)False
Q4) Briefly describe the middle-of-the-roaders' position on dividend policy.
Q5) Rightists argue that increasing a firm's dividend will increase its value.Review some of the key points in their assertion.
Q6) Managers try to avoid reducing their stock's dividend.
A)True
B)False
Q7) Briefly describe the leftists' point of view on dividends and taxes.
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Chapter 17: Does Debt Policy Matter
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Q1) For a levered firm:
A)as earnings before interest and taxes (EBIT)increases,earnings per share (EPS)increases by the same percentage.
B)as EBIT increases,EPS increases by a larger percentage.
C)as EBIT increases,EPS decreases by the same percentage.
D)as EBIT increases,EPS decreases by a larger percentage.
Q2) Briefly explain how changes in the debt-equity ratio change the firm's equity beta.
Q3) If an investor buys a portion (X)of the equity of a levered firm,then his/her payoff is:
A)(X)× (profits)
B)(X)× (interest)
C)(X)× (profits - interest)
D)(1/X)× (profits - interest)
Q4) A firm's asset beta equals the weighted average of the betas on its debt and equity,given the assumption of no taxes.
A)True
B)False
Q5) State the generalized version of Modigliani-Miller Proposition I.
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Page 19
Chapter 18: How Much Should a Corporation Borrow
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Q1) If a firm borrows $50 million for one year at an interest rate of 9%,what is the present value of the interest tax shield? Assume a 30% marginal corporate tax rate.
A)$50.00 million
B)$17.50 million
C)$1.45 million
D)$1.24 million
Q2) Firm A and Firm B are identical except that A is incorporated while B is an unlimited liability partnership.Both have assets worth $500,000 ($500K)funded with a debt ratio of 40%.Suppose that the assets suddenly become worthless,what is the maximum possible loss to the equityholders of each company?
A)Firm A: $300K; Firm B: $500K
B)Firm A: $200K; Firm B: $300K
C)Firm A: $500K; Firm B: $200K
D)Firm A: $500K; Firm B: $500K
Q3) How is Modigliani-Miller's Proposition I modified when taxes and financial distress costs are considered?
Q4) State Modigliani-Miller's Proposition I corrected to include corporate income taxes.
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Chapter 19: Financing and Valuation
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Q1) Briefly explain how the firm's equity beta changes with changes in its debt-equity ratio when taxes are considered.
Q2) The APV method can be used for valuing entire businesses.
A)True
B)False
Q3) Capital budgeting projects that incorporate both investment and financing decision side effects can be properly analyzed by:
I.adjusting the project's present value (APV);
II.adjusting the project's discount rate (WACC);
III.relying only on MM Propositions I and II
A)I only
B)II only
C)III only
D)I and II only
Q4) The Miles-Ezzell formula for the adjusted cost of capital assumes that:
A)the firm rebalances its debt ratio only once per year. B)the project cash flow is a perpetuity.
C)the project's risk is a carbon copy of the firm's risk.
D)MM's Proposition I corrected for taxes holds .
Q5) What method would you tend to use for evaluating international projects?
Page 21
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Chapter 20: Understanding Options
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Q1) For a European option: Value of call + PV(exercise price)= value of put + share price.
A)True
B)False
Q2) Put-call parity can be used to show:
A)how valuable in-the-money put options can get.
B)how valuable in-the-money call options can get.
C)the precise relationship between put and call option prices given equal exercise prices and equal expiration dates.
D)that the value of a call option is always twice that of a put given equal exercise prices and equal expiration dates.
Q3) An American call option gives its owner the right to buy stock at a fixed strike price during a specified period of time.
A)True
B)False
Q4) Call options can have a positive value at expiration even when the underlying stock is worthless.
A)True
B)False
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Chapter 21: Valuing Options
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Q1) The delta of a put option equals the delta of an equivalent call option minus one.
A)True
B)False
Q2) It is possible to replicate an investment in a call option by a levered investment in the underlying asset.
A)True
B)False
Q3) Calculate d<sub>1</sub>.
A)0.0226
B)0.175
C)-0.3157
D)0.3157
Q4) A call option has an exercise price of $100.At the exercise date,the stock price could be either $50 or $150.Which investment strategy provides the same payoff as the stock?
A)Lend PV of $50 and buy two calls.
B)Lend PV of $50 and sell two calls.
C)Borrow $50 and buy two calls.
D)Borrow $50 and sell two calls.
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Chapter 22: Real Options
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Q1) How can managers take advantage of real options? Briefly explain.
Q2) Adjusted present value of project (APV)= NPV (without abandonment option)+ value of abandonment option.
A)True
B)False
Q3) A firm in the mining industry whose major assets are cash,equipment,and a closed facility may sell at a premium to the market value of its assets.This premium is most plausibly attributed to:
A)nearsighted investors.
B)the low exercise price held by its shareholders.
C)the option to open the facility when prices rise dramatically.
D)all of the options.
Q4) Which of the following statements about the option to build flexibility into production facilities is true?
A)Typically,production flexibility is more expensive.
B)One should consider the NPV of alternate production configurations.
C)Production flexibility may be valuable by enabling the firm to choose the inputs with the lowest available costs.
D)All of the options are true.
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Chapter 23: Credit Risk and the Value of Corporate Debt
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Q1) Suppose that a bond with one-year maturity,a coupon rate of 5%,and face value of $1,000 sells for $881.94.Calculate the promised yield on the bond.
A)5.42%
B)8.07%
C)19.06%
D)5.67%
Q2) Bonds rated below BBB (Baa)are called:
A)investment-grade bonds.
B)junk bonds.
C)default-free bonds.
D)intermediate bonds.
Q3) A corporate bond matures in one year.The bond promises a coupon of $50 and principal of $1,000 at maturity.If the bond has a 10% probability of default and payment under default is $400,calculate the expected payment from the bond.
A)$1,050
B)$400
C)$985
D)$1,000
Q4) Briefly explain the term junk bonds.
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Chapter 24: The Many Different Kinds of Debt
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Q1) A 5% debenture (face value = $1000)pays interest on June 30 and December 31.It is callable at a price of 105% together with accrued interest.Suppose the company decides to call the bonds on September 30.What amount must it pay for each bond?
A)$1000.00
B)$1037.50
C)$1062.50
D)$1050.00
Q2) The largest market for foreign bonds is:
A)U.S.
B)Japan
C)Switzerland
D)Russia
Q3) What are the three elements of convertible bond value?
Q4) Floating price convertibles are convertible debt where bondholders can convert into a fixed value of shares.
A)True
B)False
Q5) What are PIK bonds?
Q6) Briefly explain the term conversion ratio.
26
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Chapter 25: Leasing
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Q1) Which of the following is NOT a financial lease?
A)a direct lease.
B)an operating lease.
C)a sale-and-leaseback.
D)All of the options are financial leases.
Q2) The cost of a seven-year lease is $150,000 per year and matches the exact cost of a loan to finance the purchase of equipment.All else equal,and given a usable life of seven years with no salvage value,what is the advantage of a lease given a discount rate of 7% and no taxes?
A)$0
B)$800,000
C)$1,500,000
D)$2,000,000
Q3) What advantage does a sale-lease-back to a SPE have?
Q4) Under a leveraged lease,the lessee borrows money and then uses these funds to make the lease payments.
A)True
B)False
Q5) What is the discount rate used for lease or buy analysis?
Q6) Briefly describe a sale and lease-back arrangement.
Page 27
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Chapter 26: Managing Risk
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Q1) A financial institution can hedge its interest rate risk by:
A)matching the duration of its assets weighted by the book value of its assets to the duration of its liabilities weighted by the book value of its liabilities.
B)setting the duration of its assets equal to half that of the duration of its liabilities.
C)matching the duration of its assets weighted by the market value of its assets with the duration of its liabilities weighted by the market value of its liabilities.
D)setting the duration of its assets weighted by the market value of its assets to one-half that of the duration of the liabilities weighted by the market value of the liabilities.
Q2) Briefly explain the term derivative.
Q3) Hedging contracts on a futures exchange eliminates:
A)market risk.
B)counterparty risk.
C)default risk.
D)currency risk.
Q4) Explain how a firm wishing to invest in floating rate investments can use a swap to manage its interest rate exposure?
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Chapter 27: Managing International Risks
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Q1) The current spot rate is BP 0.5024/$US.The 3-month forward rate is BP 0.5040/$US.The TE Company expects a payment of BP 100 million in three months.If the firm hedges this transaction in the forward market,what is the $US amount it will receive in three months?
A)$US198.41 million
B)$US199.04 million
C)$US 50.40 million
D)$US 50.24 million
Q2) An Australian firm is evaluating a proposal to build a new plant in the U.S.The expected cash flows in $US (in millions)are as follows: Year 0,-100; Year 1,40; Year 2,50; Year 3,65.The discount rate in $A is 10%,while the discount rate in $US is 12% and the spot rate is $US0.85/$A.
Calculate the NPV in $A:
A)+25.69
B)-21.84
C)+13.10
D)+21.84
Q3) Briefly describe what happens in foreign exchange markets.
Q4) Briefly explain the term political risk.
Q5) Briefly explain the term economic exposure.
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Chapter 28: Financial Analysis
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Q1) Earnings before interest and taxes is calculated as:
A)total revenues - costs.
B)total revenues - costs - depreciation.
C)total revenues - costs + depreciation - taxes.
D)total revenues - costs - depreciation - taxes.
Q2) When a firm improves (lowers)its average collection period it generally:
A)requires additional cash investment in inventory.
B)releases cash locked up in accounts receivable.
C)does not alter its cash position.
D)cannot reduce its receivables.
Q3) Equity investors have contributed $250,000 to your start-up business,while creditors provided a loan of $300,000.You have calculated your firm's WACC at 10%.The annual interest payment is $25,000 and the marginal corporate tax rate is 35%.How much profit will your equityholders need to earn in order to break even in economic terms (i.e.,EVA of zero)?
A)$25,000
B)$38,750
C)$30,000
D)$13,075
Q4) What are the three basic financial statements?
Page 30
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Chapter 29: Financial Planning
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Q1) A company has forecast sales in the first three months of the year as follows (figures in millions): January,$90; February,$20; March,$30.70% of sales are usually paid for in the month that they take place and 30% in the following month.Receivables at the end of December were $20 million.What are the forecasted collections on accounts receivable in March?
A)$27 million
B)$50 million
C)$23 million
D)$35 million
Q2) The term short-term planning usually indicates planning for the next 12 months. A)True B)False
Q3) The most important function of a short-term financial plan is:
A)to develop a cash budget.
B)to cover the forecasted requirements in the most economical way possible.
C)to help develop the long-term financial plan.
D)none of these answers.
Q4) Most firms make a permanent investment in net working capital.
A)True
B)False
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Chapter 30: Working Capital Management
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Sample Questions
Q1) Suppose that a firm sells goods on terms of 2/30,net 60.Those customers who do not take the cash discount are effectively borrowing money at approximately 2% per year.
A)True
B)False
Q2) A municipal variable rate demand bond (VRDB):
I.is a long-term security; II.has interest payments linked to the level of short-term interest rates; III.may periodically be sold back to the issuer at face value; IV.is tax-exempt
A)I only
B)I and II only
C)I,II,and III only
D)I,II,III,and IV
Q3) Briefly describe the most widely used commercial credit instruments.
Q4) What is the effective annual cost of not taking a discount under terms 3/30,net 60?
Q5) What are short-term tax-exempts?
Q6) Discuss the fundamental trade-off involved in cash management.
Q7) Briefly explain different terms of sale used in practice.
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Chapter 31: Mergers
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Q1) The main difference to shareholders between a tax-free and a taxable acquisition is that:
I.in a tax-free acquisition the shares are only exchanged,while in a taxable transaction the shares are considered sold and realized capital gains or losses are taxed;
II.in a tax-free acquisition a capital gain or loss is realized and then new shares are issued; in a taxable transaction the assets are revalued,taxed on any capital gains or losses,and then shares are exchanged;
III.in a tax-free acquisition the shareholders simply take the cash and depart,while in a taxable transaction the shareholders must stay with the new entity
A)I only
B)II only
C)III only
D)I and III only
Q2) Who usually gains the most in a merger?
A)Acquiring firm's shareholders
B)Acquiring firm's management
C)Target firm's shareholders
D)Target firm's management
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Chapter 32: Corporate Restructuring
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Q1) The largest and best documented LBO of the 1980s was:
A)KKR acquiring RJR Nabisco.
B)Thompson Co.acquiring Southland (7-11).
C)KKR acquiring Beatrice.
D)none of these options.
Q2) The following are examples of spin-offs except:
A)Motorola and Motorola Mobility.
B)AT&T and Lucent.
C)3Com and Palm.
D)Exxon and Mobil.
Q3) The main characteristics of leveraged restructurings are:
I.high debt;
II.management incentives;
III.private ownership
A)I only
B)I and II only
C)I and III only
D)I,II,and III
Q4) Briefly explain why private equity has an advantage,versus publicly owned firms,in creating value.
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Chapter 33: Governance and Corporate Control Around the World
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Q1) Consider a three-tier pyramid and a single operating company.Assume that 51% of the votes confer control at each tier.What is the minimum percentage ownership (approximately)at the highest level in the pyramid that will enable control of the operating company?
A)100%
B)51%
C)50%
D)26%
Q2) One should expect that the countries having a common law tradition would do a better job protecting: I.shareholders; II.creditors; III.managers
A)I only
B)II only
C)I and II only
D)I,II,and III
Q3) Name Germany's two boards of directors,and briefly explain why large firms in Germany have two boards of directors.
Q4) Under which circumstances would a conglomerate be effective?
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