part 4 questions I mess up

Question 1

Compared to a private limited company structure, an advantage of organizing a business as a public limited company is most likely the avoidance of:

A
double taxation.

B
owner-manager separation.

C
restrictions on ownership transfers.

Answer 1

C
restrictions on ownership transfers.

In many jurisdictions, votes are required to authorize transfers of shares issued by private limited companies. By contrast, a public limited company’s shares are listed on an exchange and can be easily traded with other investors.

Question 2

Bynary Dynamics (BND), which is currently privately held, is seeking to have its shares publicly traded and raise capital to expand its operations. The company is considering the following methods to go public:

Method 1: Direct Listing (DL)
Method 2: Initial Public Offering (IPO)

To achieve its objectives, BND can most likely use:
A
Method 1 only

B
Method 2 only

C
Either Method 1 or Method 2

Answer 2

B
Method 2 only

While both an IPO and a direct listing can be used to take a privately held company public, only an IPO will allow the company to raise new capital. In a direct listing, the company’s shares are listed on a public exchange but the transaction is not underwritten and no new capital is raised.

Question 3

Which of the following statements is most accurate? Special purpose acquisition companies:

A
are pass-through entities.

B
raise equity capital through private placements.

C
place the proceeds of their equity issuance in trust.

Answer 3

C
place the proceeds of their equity issuance in trust.

A special purpose acquisition company (SPAC) is created as a vehicle to take a private company public. After raising equity capital in an initial public offering, the SPAC places the proceeds in a trust until a target company can be identified and acquired

Question 4

The owners of Granville Precision Instruments are consider changing the company’s structure from a general partnership to a corporation in order to raise new equity. From the perspective of the owners, which of the following is most likely a disadvantage of this potential change?

A
Their control over the company’s operations will be reduced

B
The company’s retained earnings will be subject to double taxation

C
They will be required to enter into contracts on behalf of the company

Answer 4

A
Their control over the company’s operations will be reduced

Question 5

Which of the following statements is most accurate? A two-tier board structure:

A
is overseen by executive directors.

B
is composed of two separate boards.

C
includes equal numbers of executive and non-executive directors.

Answer 5

B
is composed of two separate boards.

Question 6

Which of the following is most likely an advantage of a limited partnership relative to general partnership from an investor’s perspective?

A
A general partnership is a distinct legal entity

B
Ability to access additional sources of capital

C
Ability to shield personal assets from exposure to the firm’s bankruptcy

Answer 6

C
Ability to shield personal assets from exposure to the firm’s bankruptcy

Question 7

From the corporate issuer’s perspective, the risk level of bonds compared to stocks is:

A
lower.

B
higher.

C
the same.

Answer 7

B
higher.

From the issuer’s perspective, bonds are riskier than stocks for the same reason bonds are safer than stocks for investors. Bonds increase risk to the corporation by increasing leverage. If the company is struggling and cannot meet its promised obligations to bondholders, bondholders have the legal standing to force certain actions upon the corporation, such as bankruptcy and liquidation.

Question 8

Historically, which set of ESG factors has least likely been treated as negative externalities?

A
Social

B
Governance

C
Environmental

Answer 8

B
Governance

Until relatively recently, social and environmental factors have been treated as negative externalities, meaning that their associated costs were not thought to be borne by companies or their investors.

Question 9

board of directors that includes significant numbers of both executive and non-executive members is most accurately described as having a:

A
one-tier structure.

B
supervisory board.

C
dual-class structure.

Answer 9

A
one-tier structure.

Question 10

The existence of “stranded assets” is a specific concern among investors of:

A
energy companies.

B
health care companies.

C
property companies.

Answer 10

A
energy companies.

A specific concern among investors of energy companies is the existence of “stranded assets,” which are carbon-intensive assets at risk of no longer being economically viable because of changes in regulation or investor sentiment.

Question 11

An investor concerned about a publicly traded company’s data privacy and security practices would most likely incorporate which type of ESG factors in an investment analysis?

A
Social

B
Governance

C
Environmental

Answer 11

B
Governance

social factors considered in ESG implementation generally pertain to the management of the human capital of a business, including data privacy and security.

Question 12

Which of the following stakeholders are least likely to be positively affected by increasing the proportion of debt in the capital structure?

A
Senior management

B
Non-management employees

C
Shareholders

Answer 12

B
Non-management employees

While leverage increases risk for all stakeholders, shareholders generally benefit through higher potential returns. Senior management typically benefits through equity-based compensation. For non-management employees, equity-based compensation is likely to be small to non-existent.

Question 13

Which of the following board structures is most consistent with the stakeholder theory of corporate governance?

A
One-tiered board

B
Two-tiered board

C
Staggered board

Answer 13

B
Two-tiered board

Stakeholder theory is based on the idea that corporate governance should consider all stakeholders, not just shareholders. A two-tiered board structure includes a supervisory board, which is composed for non-executive directors representing a broader range of stakeholders, including employees, labor unions, and the general public.

One-tiered boards and boards created by staggered elections do not explicitly consider the interests of non-shareholder stakeholders.

Question 14

The CEO of a publicly-listed company makes the following statement: “By using proper governance mechanisms and control systems, it is possible to completely eliminate information asymmetry between principals and agents. However, it may be in the best interests of shareholders to maintain some level of information asymmetry relative to their agents.”

This statement is most likely:

A
correct.

B
incorrect because any information asymmetry is detrimental to shareholders.

C
incorrect because it is not possible to completely eliminate information asymmetry between principals and agents.

Answer 14

C
incorrect because it is not possible to completely eliminate information asymmetry between principals and agents.

Question 15

A credit committee formed in the aftermath of a bankruptcy most likely represents the interests of:

A
borrowers.

B
employees.

C
unsecured creditors.

Answer 15

C
unsecured creditors.

In certain jurisdictions, credit committees are formed to represent the interests of lenders, particularly unsecured creditors, during the bankruptcy process.

Question 16

effrey Hamilton owns and operates JH Advisors, a boutique firm that advises corporate clients on matters of corporate governance. The firm’s largest client, Traymore Construction (TMC), has a long-standing retainer agreement with Hamilton to advise the company on how to structure the compensation packages of its senior managers. Last month, Hamilton was elected to serve as a director on TMC’s board and there are several board committees on which he is interested in serving, notably the nominating committee and the audit committee.

Which of the following statements is most accurate? According to corporate governance best practices, Hamilton:

A
may sit on both the audit committee and the nominating committee.

B
must not sit on either the audit committee or the nominating committee.

C
may sit on the nominating committee, but must not sit on the audit committee.

Answer 16

B
must not sit on either the audit committee or the nominating committee.

Question 17

Which of the following would most likely reduce a company’s level of information asymmetry?

A
Selling more sophisticated products

B
Expanding operations into more countries

C
Selling more shares to institutional investors

Answer 17

C
Selling more shares to institutional investors

Question 18

A control system that is weak with respect to the quantity and quality of corporate information is most likely to serve the interests of:

A
directors.

B
managers.

C
shareholders.

Answer 18

B
managers.

Question 19

Which of the following statements is most accurate? A tender offers is:

A
made without the consent of the target company’s management team.

B
a mechanism that can be used to change a target company’s management team.

C
an attempt to persuade a target company’s current shareholders to vote for a new set of directors.

Answer 19

B
a mechanism that can be used to change a target company’s management team.

Question 20

Which of the following examples would best be described as a pull on liquidity?

A
A reduced line of credit

B
A delinquent account receivable

C
Issuing short-term debt becomes more expensive

Answer 20

A
A reduced line of credit

n basic terms, for a company to be liquid, money must come in before it goes out. There are 2 potential difficulties; drags and pulls.

A drag is when the money doesn’t come in when expected (such as an account receivable being late or uncollectible).

A pull is when the money must go out sooner than expected (such as a reduced line of credit, or early payments).

Question 21

Two analysts are discussing the costs of external financing sources. The first states that the company’s bonds have a known interest rate but that the interest rate on accounts payable and the interest rate on equity financing are not specified. They are implicitly zero. Upon hearing this, the second analyst advocates financing the firm with greater amounts of accounts payable and common shareholders equity. Is the second analyst correct in his analysis?

A
He is correct in his analysis of accounts payable only.

B
He is correct in his analysis of common equity financing only.

C
He is not correct in his analysis of either accounts payable or equity financing.

Answer 21

C
He is not correct in his analysis of either accounts payable or equity financing.

Although accounts payable do not charge an explicit interest rate, the cost of accounts payable is reflected in the costs of the services or products purchased and in the costs of any discounts not taken. Accounts payable can have a very high implicit cost. Similarly, equity financing is not free. A required return is expected on shareholder financing just as on any other form of financi

Question 22

hich of the following examples would be best described as a drag on liquidity?

A
Reduced line of credit

B
Early payment to creditors

C
Delinquent account receivable

Answer 22

C
Delinquent account receivable

In basic terms, for a company to be liquid, money must come in before it goes out. There are 2 potential difficulties; drags and pulls.

A drag is when the money doesn’t come in when expected (such as an account receivable being late or uncollectible).

A pull is when the money must go out sooner than expected (such as a reduced line of credit, or early payments).

Question 23

A firm will most likely rely on estimates of opportunity cost if it uses:

A
cost-based pricing.

B
penetration pricing.

C
value-based pricing.

Answer 23

C
value-based pricing.

A value-based approach sets prices according to the value that a customer receives. Often, this involves estimating the opportunity cost of not making the purchase. For example, customers will be willing to pay a high price for a product or service that helps them avoid potentially catastrophic losses.

Question 24

A bundling pricing strategy is best suited to complementary products that have:

A
low profit margins and low marketing costs.

B
high profit margins and low marketing costs.

C
high profit margins and high marketing costs.

Answer 24

C
high profit margins and high marketing costs.

A bundling pricing strategy is particularly effective for selling complementary products with high incremental profit margins and high marketing costs relative to the cost of the product. For example, phone, internet, and cable television services.

Question 25

A flower shop has preferred supplier arrangements with an answering service, to take orders after hours, and a bicycle delivery service, to ensure that it can make deliveries quickly, reliably, and at a reasonable cost. Which of the following statements is most accurate for the flower shop?

A
The answering service is part of its supply chain.

B
The bicycle delivery service is part of its supply chain.

C
The bicycle delivery service is not a part of the value proposition for the flower shop.

Answer 25

B
The bicycle delivery service is part of its supply chain.

A supply chain includes all the steps involved in producing and delivering a physical product to the end customer, regardless of whether those steps are performed by a single firm. A value chain includes only those functions performed by a single firm, but it also includes functions that are valuable to customers but may not involve physical transformation or handling of the product.

Question 26

hich of the following businesses is least likely to have network effects?

A
A telephone company

B
A price comparison website for travel airfares

C
A resume preparation service for online job seekers

Answer 26

C
A resume preparation service for online job seekers