Test Bank For - Canadian Edition By Berk, DeMarzo, Harford, Sta...

Test Bank For Fundamentals of Corporate Finance 5th Canadian Edition By Berk, DeMarzo, Harford, Stangeland, Marosi (All Chapters 1-25, 100% Original Verified, A+ Grade)

All Chapters Arranged Reverse: 25-1

This is The Original Test Bank For 5 th Ed iti on, All Other Files in The Market are Fake/Old/Wrong Edition. 1 / 4

Fundamentals of Corporate Finance, 5Ce (Berk) Chapter 25 Corporate Governance 25.1 Corporate Governance and Agency Costs 1) Corporate governance is the system of controls designed to minimize conflicts between bondholders and shareholders.

Answer: FALSE

Diff: 1 Type: TF

Skill: Conceptual

Objective: 25.1 See corporate governance as a response to principal-agent problems 2) Which of the following is an example of an agency problem?

• managers not working as diligently if they are not the sole owner of the business
• the board of directors firing an incompetent manager
• the manager owning a great deal of stock in the company
• a corporate raider attempting to purchase the company
• managers using cash to increase dividends

Answer: A

Diff: 2 Type: MC

Skill: Conceptual

Objective: 25.1 See corporate governance as a response to principal-agent problems 3) What is corporate governance?Answer: Corporate governance is the system of controls, regulations, and incentives designed to prevent fraud and to minimize the conflicts of interests between managers and investors.Diff: 1 Type: SA

Skill: Definition

Objective: 25.1 See corporate governance as a response to principal-agent problems 4) What is the cost of aligning managers' interests with those of shareholders?Answer: Aligning the interests of shareholders and managers increases the managers' exposure to the firm's risk, as the firm might do poorly for reasons other than the managers' performance.Diff: 1 Type: SA

Skill: Conceptual

Objective: 25.1 See corporate governance as a response to principal-agent problems 1

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25.2 Monitoring by the Board of Directors and Others 1) When the ownership of a corporation is widely held, no one shareholder has the incentive to bear the cost of monitoring the firm's managers.

Answer: TRUE

Diff: 1 Type: TF

Skill: Conceptual

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 2) The least costly solution to the conflict of interest problem is simply to monitor the firm's managers closely.

Answer: FALSE

Diff: 1 Type: TF

Skill: Conceptual

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 3) Directors who are employees, former employees, or family members of employees are called:

• managing directors.
• independent directors.
• inside directors.
• grey directors.
• unelected directors.

Answer: C

Diff: 1 Type: MC

Skill: Definition

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 4) Directors who are NOT as directly connected to the firm but who have existing or potential business

relationships with the firm are called:

• grey directors.
• independent directors.
• advising directors.
• inside directors.
• unelected directors.

Answer: A

Diff: 1 Type: MC

Skill: Definition

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 2

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5) Directors who are NOT employees, former employees, or family members of employees and who do

not have existing or potential business relationships with the firm are called:

• monitoring directors.
• independent directors.
• grey directors.
• inside directors.
• unelected directors.

Answer: B

Diff: 1 Type: MC

Skill: Definition

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 6) Tammy is a member of the Board of Directors of Moon Corporation. Her husband is the manager of a large division. What type of director is Tammy?

• inside director
• outside director
• grey director
• resident director
• unelected director

Answer: A

Diff: 1 Type: MC

Skill: Conceptual

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 7) When a board's monitoring duties have been compromised by connections or perceived loyalties to

management, it is said to be:

• a dysfunctional board.
• an institutional board.
• a failed board.
• a divided board.
• a captured board.

Answer: E

Diff: 1 Type: MC

Skill: Conceptual

Objective: 25.2 Know the role of the board, employees, lenders, analysts, and regulators in monitoring managers 3 .

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