FIN 302- Exam #2 Solutions(mine)

FIN 302- Exam #2 Solutions(mine) - Exam II Finance 302...

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Exam II Finance 302 Spring 2011 Your Name:______________________________________________________________ Registered in section: 11:15AM 12:45PM (circle one) Select the best answer to the question & fill in the answer form. I also recommend that you record your answer in your exam booklet, in the event there is a mistake filling out your answer form. Your answer form should include your name and your unique ID. Your exam booklet must include your name. Formulas PV = FV / (1+i) n Price = EPS / r + NPVGO per share PV of an annuity = PV = C/i × [1-1/(1+i) n After-tax Sales Revenue = Sales Price - T c [Sales price - Book Value] CV = E[NPV] / σ NPV 1
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1)_____C______ Which of the following is true of agency costs (as they relate to corporate governance)? a) The firm should use any means possible to eliminate agency costs . b) Agency costs are equal to the sum of the executive’s cash compensation, bonus, deferred compensation (such as stock options) and managerial perks c) Agency costs are the difference in firm value when managers act in their own interests at shareholder expense and when managers maximize shareholder wealth. d) Agency costs are equal to the sum of director fees plus stock options awarded to board members who are not currently employed by the firm. e) Two of the above are true Eliminating agency costs is, itself, costly. Firms must weigh the benefits of agency cost elimination with the cost of eliminating agency costs. 2)______A____ Wendy’s Corp (fast food) is seeking to replace several board members. Which of the following individuals would be least likely to be nominated to serve on Wendy’s board? a) CEO of McDonald's. b) President of US Bank Corp. c) A private investor who owns a 10% block of Wendy’s common stock. d) President of Ford Motor Co. e) President of Wendy’s Corp. Executives in the same industry do not serve on boards due to their potential conflict of interest 3)______D____ Which of the following directors would be considered an “affiliated” or “grey” director of Proctor and Gamble? a) Chief Operating Officer of Proctor and Gamble b) A member of Cincinnati’s City Council c) An endowed professor of marketing at the Richard T. Farmer School of Business. e) In fact, none of the above would be considered to be an affiliated (grey) director Affiliated directors can have current or potential business ties to the firm 4)______D____ Primary residences located in THIS STATE can not be seized as the result of a personal bankruptcy filing (as per the state’s constitution) a) Arizona b) California c) New York d) Florida e) All of the above 5)____C______ Which of the following changes should decrease a firm’s agency costs? a) A decrease in their debt/asset ratio
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FIN 302- Exam #2 Solutions(mine) - Exam II Finance 302...

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