To mitigate deadweight costs associated with the shareholder-management principal-agent conflict, some investors become major shareholders and attempt to influence management to act in the best interest of shareholders. This is an example of: a. a takeover. b. shareholder activism. c. packing the board. d. principal intervention. ANSWER B
A firm is said to be insolvent when its total assets is less than its total liabilities and stockholders’ equity. Indicate whether the statement is true or false ANSWER FALSE
When computing the total cash outflow needed to start a project, we must include ________. A) any change in net income B) any change in working capital C) any change in dividends D) any change in earnings ANSWER Answer: B
Compute the present value of the tax shield generated when Smith Company issues $100 mn. in perpetual debt with an 8% coupon rate, and uses the proceeds to retire equity. The corporate tax rate is 34%. a. $2.72 mn. b. $8 mn. c. $34 mn. d. 272 mn. ANSWER C
Financial institutions (such as commercial banks and finance companies) play an important role in mitigating information asymmetry problems in financial markets because: a. they require a potential borrower to disclose confidential information about their project to the public before they are approved for a loan. b. they regularly receive private information from the firm about […]
Northern Co. purchases an asset for $50,000. This asset qualifies as a five-year recovery asset under MACRS, with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Northern has a tax rate of 35%. If the asset is sold at the end […]
Southern Inc. purchases an asset for $150,000. This asset qualifies as a five-year recovery asset under MACRS with the fixed depreciation percentages as follows: year 1 = 20.00%; year 2 = 32.00%; year 3 = 19.20%; year 4 = 11.52%. Southern has a tax rate of 35%. If the asset is sold at the end […]
Fully depreciated assets ________ , and so any proceeds from sale at disposal are taxable gains. A) always have a market value of zero B) have a positive book value C) have a negative market value D) have a book value of zero ANSWER Answer: D
Under the Securities Exchange Act of 1934, Congress created the Securities and Exchange Commission (the ‘SEC’). The SEC’s mission is to administer federal securities laws and issue rules and regulations to provide protection for investors and to ensure that the securities markets are fair and honest. This is accomplished primarily by: a. creating a national […]
Net working capital can be defined as the portion of a firm’s current assets financed with long-term funds. Indicate whether the statement is true or false ANSWER FALSE
