CORPORATE FINANCE. STUDY QUESTIONS
AND ANSWERS FOR FINAL EXAM PREP 2024
1. Q. Under the stakeholder theory, corporate governance is
most consistent with a system of:
internal controls and procedures by which individual companies
are managed.
defined roles for management and the majority shareowner(s).
checks and balances to minimize the conflicting interests among
shareowners.:
A is correct. Corporate governance is the system of internal controls
and procedures by which individual companies are managed.
B is incorrect because the majority shareholder doesn't necessarily
have a specific role that is defined through corporate governance.
Instead, the majority shareholder exercises influence and/or control
through voting mechanisms tied to their shareholdings.
C is incorrect because corporate governance is primarily aimed at
managing the conflicting interests between management and
external shareholders, not amongst shareholders.
2. Q. Corporate governance:
complies with a set of global standards.
is independent of both shareholder theory and stakeholder
theory.
seeks to minimize and manage conflicting interests between insiders
and external shareholders.: C is correct. Corporate governance is the
arrangement of checks, balances, and incentives a company needs
to minimize and manage the conflicting interests between insiders
and external shareholders.
3. Q. Which group of company stakeholders would be least
affected if the firm's financial position weakens?
, CORPORATE FINANCE. STUDY QUESTIONS
AND ANSWERS FOR FINAL EXAM PREP 2024
Suppliers
Customers
Managers and employees: B is correct. Compared with other
stakeholder groups, customers tend to be less concerned with, and
affected by, a company's financial performance
4. Which stakeholders would most likely realize the greatest
benefit from a significant increase in the market value of the
company?
Creditors
Customers
Shareholders: C is correct. Shareholders own shares of stock in the
company, and their wealth is directly related to the market value of the
company. A is incorrect because creditors are usually not entitled to any
additional cash flows (beyond interest and debt repayment) if the
company's value increases. B is incorrect because customers may have
an interest in the company's stability and long-term viability but they do
not benefit directly from an increase in a company's value.
5. Q. Which of the following represents a principal-agent conflict
between shareholders and management?
Risk tolerance
Multiple share classes
Accounting and reporting practices: A is correct. Shareholder and
manager interests can diverge with respect to risk tolerance. In some
cases, shareholders with diversified investment portfolios can have a
fairly high-risk tolerance because specific company risk can be diversified
away. Managers are typically more risk averse in their corporate decision
making to better protect their employment status.
, CORPORATE FINANCE. STUDY QUESTIONS
AND ANSWERS FOR FINAL EXAM PREP 2024
6. Q. Which of the following issues discussed at a shareholders'
general meeting would most likely require only a simple
majority vote for approval?
Voting on a merger
Election of directors
Amendments to bylaws: B is correct. The election of directors is
considered an ordinary resolution and, therefore, requires only a simple
majority of votes to be passed.
7. Q. Which of the following statements regarding stakeholder
management is most accurate?
Company management ensures compliance with all applicable
laws and regulations.
Directors are excluded from voting on transactions in which they
hold material interest.
The use of variable incentive plans in executive remuneration is
decreasing.: B is correct. Often, policies on related-party transactions
require that such transactions or matters be voted on by the board (or
shareholders), excluding the director holding the interest.
8. Which of the statements about extraordinary general
meetings (EGMs) of shareholders is true?
The appointment of external auditors occurs during the ECM.
A corporation provides an overview of corporate performance at
the EGM.
An amendment to a corporation's bylaws typically occurs during the
EGM.: C is correct. An amendment to corporate bylaws would normally
take place during an EGM, which covers significant changes to a
company, such as bylaw amendments. A and B are incorrect because the
appointment of external auditors and a corporate performance overview
would typically take place during the ACM.
AND ANSWERS FOR FINAL EXAM PREP 2024
1. Q. Under the stakeholder theory, corporate governance is
most consistent with a system of:
internal controls and procedures by which individual companies
are managed.
defined roles for management and the majority shareowner(s).
checks and balances to minimize the conflicting interests among
shareowners.:
A is correct. Corporate governance is the system of internal controls
and procedures by which individual companies are managed.
B is incorrect because the majority shareholder doesn't necessarily
have a specific role that is defined through corporate governance.
Instead, the majority shareholder exercises influence and/or control
through voting mechanisms tied to their shareholdings.
C is incorrect because corporate governance is primarily aimed at
managing the conflicting interests between management and
external shareholders, not amongst shareholders.
2. Q. Corporate governance:
complies with a set of global standards.
is independent of both shareholder theory and stakeholder
theory.
seeks to minimize and manage conflicting interests between insiders
and external shareholders.: C is correct. Corporate governance is the
arrangement of checks, balances, and incentives a company needs
to minimize and manage the conflicting interests between insiders
and external shareholders.
3. Q. Which group of company stakeholders would be least
affected if the firm's financial position weakens?
, CORPORATE FINANCE. STUDY QUESTIONS
AND ANSWERS FOR FINAL EXAM PREP 2024
Suppliers
Customers
Managers and employees: B is correct. Compared with other
stakeholder groups, customers tend to be less concerned with, and
affected by, a company's financial performance
4. Which stakeholders would most likely realize the greatest
benefit from a significant increase in the market value of the
company?
Creditors
Customers
Shareholders: C is correct. Shareholders own shares of stock in the
company, and their wealth is directly related to the market value of the
company. A is incorrect because creditors are usually not entitled to any
additional cash flows (beyond interest and debt repayment) if the
company's value increases. B is incorrect because customers may have
an interest in the company's stability and long-term viability but they do
not benefit directly from an increase in a company's value.
5. Q. Which of the following represents a principal-agent conflict
between shareholders and management?
Risk tolerance
Multiple share classes
Accounting and reporting practices: A is correct. Shareholder and
manager interests can diverge with respect to risk tolerance. In some
cases, shareholders with diversified investment portfolios can have a
fairly high-risk tolerance because specific company risk can be diversified
away. Managers are typically more risk averse in their corporate decision
making to better protect their employment status.
, CORPORATE FINANCE. STUDY QUESTIONS
AND ANSWERS FOR FINAL EXAM PREP 2024
6. Q. Which of the following issues discussed at a shareholders'
general meeting would most likely require only a simple
majority vote for approval?
Voting on a merger
Election of directors
Amendments to bylaws: B is correct. The election of directors is
considered an ordinary resolution and, therefore, requires only a simple
majority of votes to be passed.
7. Q. Which of the following statements regarding stakeholder
management is most accurate?
Company management ensures compliance with all applicable
laws and regulations.
Directors are excluded from voting on transactions in which they
hold material interest.
The use of variable incentive plans in executive remuneration is
decreasing.: B is correct. Often, policies on related-party transactions
require that such transactions or matters be voted on by the board (or
shareholders), excluding the director holding the interest.
8. Which of the statements about extraordinary general
meetings (EGMs) of shareholders is true?
The appointment of external auditors occurs during the ECM.
A corporation provides an overview of corporate performance at
the EGM.
An amendment to a corporation's bylaws typically occurs during the
EGM.: C is correct. An amendment to corporate bylaws would normally
take place during an EGM, which covers significant changes to a
company, such as bylaw amendments. A and B are incorrect because the
appointment of external auditors and a corporate performance overview
would typically take place during the ACM.
