Exam1 Quiz Key

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QUIZ1
FF2-1
What are the three sources of financial value?
---------time value, transformation value, and arbitrage
FF32-92
Which statement most accurately describes the members on the Board of Directors? --------They often are successful outsiders with careers unrelated to the mission of the company They are elected to the Board by shareholders

They usually are not employees of the company
FF29
The typical management hierarchy is a pyramid headed by the Board of Directors. Underneath that are senior management, including the Chief Executive Office (CEO) and Chief Financial Officer (CFO). Which statement is most consistent with the textbook discussion. -------The Office of the Treasurer typically administers the finance functions of the firm.
The Office of the Controller typically administers the accounting functions of the firm.
Besides the CEO, there are in a typical large corporation many senior management positions (e.g., Marketing Chief; Head General Counsel, CFO) and no single-one can really be called most important. FF25

Choose the one statement that most correctly describes categorization schemes of the financial market -------------the equity market includes stocks that do not specify repayment schedules but instead represent a claim on residual cash flows the nature of the repayment promise is the distinguishing criterion when categorizing markets as either credit market or equity market the money market includes financial securities repayable within one year the distinguishing criterion when categorizing markets as either primary or secondary is whether the security is new or used (seasoned) the capital market includes financial securities repayable in more than one year

the primary market includes stocks and bonds issued by the company to investors FF20
Which statement is most consistent with one or more of the principal-agent relationships that exist in corporate finance? -------------creditor/bondholders are the principals, management/shareholders are the agents, and the contested wealth is loans and debt employees are the principals, management/shareholders are the agents, and the contested wealth is pension contributions shareholders are principals, management is the agent, and the contested wealth is equity FF4

Which of the following mechanisms does not provide managers with an incentive to act in shareholders' best interests? --------------a leveraged buyout of shares by managers
FF31
According to the new view of corporate finance which statement provides the best description for the proper goal of the company? --------------maximize wealth creation

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QUIZ2
BS31
Three common anti-takeover measures often appear during contests for corporate control. Identify the statement that correctly describes the respective measure. -------------Golden parachutes are provisions approved by shareholders of potential takeover targets that provide management with lucrative payments in event they are terminated because of a take-over. A white-knight strategy occurs when a potential takeover target tries to find a friendly company to takeover the target in order to thwart an unfriendly raider. Poison pills are provisions approved by shareholders of potential takeover targets that, among other things, enable management to issue large numbers of new stocks to existing target shareholders. FA5

The company share price in the stock market is $50 . The equity book value per share according to the balance sheet is $62 . There are 510 million shares outstanding. Find the company market capitalization and equity price to book ratio....
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