Answer Options:
a. Including restrictive covenants in the company’s bond indenture (which is the contract between the company and its bondholders).
b. Compensating managers with more stock options and less cash income.
c. The passage of laws that make it harder for hostile takeovers to succeed.
d. A government regulation that banned the use of convertible bonds.
e. The firm begins to use only long-term debt, e.g., debt that matures in 30 years or more, rather than debt that matures in less than one year.
Answer: a
Question: If a firm’s stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.
Answer Options:
a. True
b. False
Answer: b. False
Question: A sale and leaseback arrangement is a type of financial, or capital, lease.
Answer Options:
a. True
b. False
Answer: a. True
Question: Which of the following statements is CORRECT?
Corporations generally face fewer regulations than proprietorships.
Corporate shareholders are exposed to unlimited liability.
It is usually easier to transfer ownership in a corporation than in a partnership.
Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
Answer: c. It is usually easier to transfer ownership in a corporation than in a partnership.
Question: Founders’ shares are a type of classified stock where the shares are owned by the firm’s founders, and they generally have more votes per share than the other classes of common stock.
Answer Options:
a. True
b. False
Answer: a. True
Question: The Chairman of the Board must also be the CEO.
a. True
b. False
Answer: False
Question: If a firm’s board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose focus is on the firm’s long-term value.
True
False
Answer: a. True
Question: Firms generally do not call their convertibles unless the conversion value is greater than the call price.
Answer Options:
a. True
b. False
Answer: a. True
Question: The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though many corporate control experts believe it is bad to vest both offices in the same person.
a. True
b. False
Answer: True
Question: One advantage of the corporate form of organization is that it avoids double taxation.
a. True
b. False
Answer: False