Finance question – corporate governance has become increasingly

Corporate governance has become increasingly important over the years.  The Sarbanes-Oxley (SOX) Act was enacted to improve transparency in financial accounting and to prevent fraud.  Which of the following is correct?

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fraud has not occurred since enactment of SOX

 

SOX has not increased auditing costs

 

government agencies are not required to comply withSOX

 

SOX requires companies to have a strong board ofdirectors

 

none of the above

 

 

 

 

Tactics that firms use to avoid hostile takeovers include:

 

greenmail

 

shareholder rights provisions.

 

restricted voting rights.

 

poison pills.

 

all of the above

 

 

 

Both Adams and Wolfe are large public corporations with subsidiaries throughout the world.   Adams  uses a centralized approach and  makes most of the decisions for its subsidiaries.  Wolfe  uses a decentralized approach and its subsidiaries make most of their own decisions.   Which of the following is correct?

 

the agency problem would probably be more pronounced for Wolfe because of a higher probability that subsidiary decisions would conflict with the parent

 

agency costs would be the same for both companies

 

a decentralized approach is almost always better

 

a centralized approach is almost always better

 

none of the above

 

 

 

 

With convertible bonds, 

 

the company receives additional cash money when the convertibles are converted.

 

Investors are willing to accept a lower interest rate on a convertible than on otherwise similar straight debt

 

Investors require a higher interest rate than on otherwise similar straight debt

 

the convertibles cannot be converted for at least 10 years

 

none of the above

 

 

 

A firm’s common stock currently sells for $17.50.  Its 10% convertible bonds (issued at par $1000)  now sell for $900 and the conversion price is $20.  What is the conversion ratio?

 

87.5

 

17.5

 

50.0

 

45.00

 

none of theabove

 

 

 

Convertible bonds are:

 

considered equity on the balance sheet

 

similar in risk to the company’s common stock

 

riskier than the company’s common stock

 

less risky than the company’s common stock

 

none of the above

 

 

 

 

 

 

 

 

 

 

KORO Corporation’s common stock currently sells for $27.50.  Its  8% convertible bonds (issued at par $1000) now sell for $950.   The bonds can be converted into 40 shares of common stock.  What is the conversion price?

 

$25

 

$40

 

$23.50

 

$38

 

none of the above

 

 

 

KORO Corporation’s common stock currently sells  for $27.50.  Its  8% convertible bonds (issued at par $1000) now sell for $950.   The bonds can be converted into 40 shares of common stock.  What is the conversion value of the bond?

 

$688

 

$593.75

 

$950

 

$1,100

 

none of the above

 

 

 

 

Which of the following is correct?

 

Warrants are similar to long-term put options

 

The company receives additional funds when warrants are exercised

 

The company receives additional funds when bonds are converted

 

Warrants can sometimes be detached and traded separately from the debt with which they were issued, but this is unusual.

 

none of the above

 

 

 

 

A company will issue 20-year bonds with annual interest payments.  Each bond will include 20 warrants that give the holder to purchase one share of stock per warrant.  Each warrant is expected to have a value of $5.75.  A similar straight-debt issue would require an 8% coupon.  What coupon rate should be set on the bonds with warrants so that the package will sell for $1,000?

 

 

5.76%

 

6.83%

 

7.94%

 

6.98%

 

none of the above

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