Assignment 1 - Corporate Finance CFIN512 Prof. Raad Jassim...

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Corporate Finance CFIN512 Prof. Raad Jassim Foucher, S. 260 223 197 Assignment 1 1. Which of the following work to reduce agency conflicts between stockholders and bondholders? a. Including restrictive covenants in the company’s bond contract. b. Providing managers with a large number of stock options. c. The passage of laws that make it easier for companies to resist hostile takeovers. d. Statements b and c are correct. e. All of the statements above are correct. 2. Which of the following mechanisms is used to motivate managers to act in the interest of shareholders? a. Bond covenants. b. The threat of a takeover. c. Pressure from the board of directors. d. Statements a and b are correct. e. Statements b and c are correct . 3. a. The ordinary annuity will have a lower F.V than the annuity due by a factor of 1.1. Since the annuity due is paid at the beginning of a period, instead of the end, each payment benefits one more interest period than when annuity is paid at the end of that period. 4. Which of the following statements is most correct? a. One advantage of organizing your business as a corporation is that your shareholders are not subject to limited liability. b. Restrictive covenants in debt agreements are an effective way to reduce agency conflicts between stockholders and managers. c. Managers generally welcome hostile takeovers since they often increase the company’s stock price. d. Statements a and b are correct. e. None of the answers above is correct. 5. a. Pore management might be a factor causing the takeover, and the transfers of liability will most likely result in the acquired firm’s CEO losing his job. Regardless of the factors keeping the share price down, an under evaluated firm is always at risk of potential takeover, friendly or hostile, as long as there is sufficient capital in the markets (which doesn’t seem to be the care at the moment) 6. Which of the following statements is most correct?
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a. Since they are guaranteed a certain set of cash flows, corporate bondholders generally want corporate managers to select high risk/high return projects. b. One advantage of forming a corporation is that you can deduct your corporate taxes,
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This note was uploaded on 02/16/2012 for the course BUSINESS 331 taught by Professor Rhee during the Spring '12 term at Strayer.

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Assignment 1 - Corporate Finance CFIN512 Prof. Raad Jassim...

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