CORPORATE FINANCE STUDY QUESTIONS AND
ANSWERS. 2024 REVISION MATERIAL
1. are the markets for short-term debt securities, while
markets for long-term debt securities and stocks.: Money
markets; capital markets
Short-term debt securities, such as treasury bills and certificates of
deposit, are said to trade in the money market. Long-term debt
securities, such as treasury notes and bonds, commercial and
municipal bonds, and stocks trade in the capital market.
Securities with a time to maturity of up to one year are considered
money market instruments, while securities with a time to maturity of
more than one year, or no maturity date at all (like stocks), are
considered capital market instruments.
2. offer checking and savings accounts and lend to businesses
and consumers.: Commercial banks
Commercial banks such as Bank of America, Citbank and Wells Fargo
offer checking and savings accounts. They also lend to businesses
and consumers, e.g., by providing mortgages
3. The NYSE is anand NASDAQ is a.: exchange;
dealer market
The New York Stock Exchange is a physical location exchange, where
traders trade on a trading floor. However, these days most of the trading
in NYSE-listed stocks is done electronically off the trading floor.
NASDAQ is a dealer market, where dealers (financial companies)
hold an inventory of stocks and quote prices to buy and sell the
stocks in which they make a market. 4. The goal of financial
management is to .: maximize the market value of equity
(shareholder wealth)
, CORPORATE FINANCE STUDY QUESTIONS AND
ANSWERS. 2024 REVISION MATERIAL
The goal of financial management is to maximize the market value of
the existing owners' equity. For public companies, this is the same as
maximizing the stock price, or shareholder wealth maximization
5. true statements: A general partnership can have many owners.
C-corporations are subject to double taxation.
Corporations and LLCs limit the owners' liability.
NOT True: LLCs are best for taking venture capital.
because: Companies that want to take investments from many
shareholders are best organized as corporations
6. Which statement is FALSE? The board of directors appoints and
monitors the executive board
Shareholders supervise the executive board
Shareholders elect the board of directors
The board of directors has a fiduciary duty to shareholders
FALSE: Shareholders supervise the executive board because: There
are too many shareholders to effectively supervise the executive
board. That is why shareholders elect a board of directors to
supervise the top managers on their behalf
7. Which is NOT a means of reducing the conflict of interest
between shareholders and the executive board? Regulation to
increase transparency The threat of being fired by the board of
directors
The threat of being fired after a hostile takeover
The threat of lawsuits by disgruntled shareholders
Paying executives with restricted stocks and stock options
answer: The threat of lawsuits by disgruntled shareholders because:
If a group of shareholders brings a lawsuit against the company and
a court finds in their favor, the money that the company has to pay
ANSWERS. 2024 REVISION MATERIAL
1. are the markets for short-term debt securities, while
markets for long-term debt securities and stocks.: Money
markets; capital markets
Short-term debt securities, such as treasury bills and certificates of
deposit, are said to trade in the money market. Long-term debt
securities, such as treasury notes and bonds, commercial and
municipal bonds, and stocks trade in the capital market.
Securities with a time to maturity of up to one year are considered
money market instruments, while securities with a time to maturity of
more than one year, or no maturity date at all (like stocks), are
considered capital market instruments.
2. offer checking and savings accounts and lend to businesses
and consumers.: Commercial banks
Commercial banks such as Bank of America, Citbank and Wells Fargo
offer checking and savings accounts. They also lend to businesses
and consumers, e.g., by providing mortgages
3. The NYSE is anand NASDAQ is a.: exchange;
dealer market
The New York Stock Exchange is a physical location exchange, where
traders trade on a trading floor. However, these days most of the trading
in NYSE-listed stocks is done electronically off the trading floor.
NASDAQ is a dealer market, where dealers (financial companies)
hold an inventory of stocks and quote prices to buy and sell the
stocks in which they make a market. 4. The goal of financial
management is to .: maximize the market value of equity
(shareholder wealth)
, CORPORATE FINANCE STUDY QUESTIONS AND
ANSWERS. 2024 REVISION MATERIAL
The goal of financial management is to maximize the market value of
the existing owners' equity. For public companies, this is the same as
maximizing the stock price, or shareholder wealth maximization
5. true statements: A general partnership can have many owners.
C-corporations are subject to double taxation.
Corporations and LLCs limit the owners' liability.
NOT True: LLCs are best for taking venture capital.
because: Companies that want to take investments from many
shareholders are best organized as corporations
6. Which statement is FALSE? The board of directors appoints and
monitors the executive board
Shareholders supervise the executive board
Shareholders elect the board of directors
The board of directors has a fiduciary duty to shareholders
FALSE: Shareholders supervise the executive board because: There
are too many shareholders to effectively supervise the executive
board. That is why shareholders elect a board of directors to
supervise the top managers on their behalf
7. Which is NOT a means of reducing the conflict of interest
between shareholders and the executive board? Regulation to
increase transparency The threat of being fired by the board of
directors
The threat of being fired after a hostile takeover
The threat of lawsuits by disgruntled shareholders
Paying executives with restricted stocks and stock options
answer: The threat of lawsuits by disgruntled shareholders because:
If a group of shareholders brings a lawsuit against the company and
a court finds in their favor, the money that the company has to pay
