CORPORATE FINANCE HW1 EXAM
QUESTIONS AND ANSWERS
Regarding corporate governance, which of the following areas of responsibility is a
board committee least likely to be created?
Nominations to the board
Ethics
Compensation of the executive management
Adhering to audit standards - ANSWER-Ethics
A strong corporate code of ethics is vitally important. Which of the following statements
concerning a firm's code of ethics is least likely accurate?
A firm's code of ethics sets standards for ethical conduct based on basic principles of
integrity, trust and honesty.
A whistleblower procedure should be implemented as a management tool to support
internal audit department
A firm's code of ethics should require clear disclosure of any advantages given to the
firm's insiders that are not also offered to shareholders.
As part of investor review of the firm's ethical climate, investors should determine
whether the firm gives the board access to relevant corporate information in a timely
manner. - ANSWER-A firm's code of ethics should require clear disclosure of any
advantages given to the firm's insiders that are not also offered to shareholders.
Which of the following is an example of a conflict of interest that an effective corporate
governance system would mitigate or eliminate?
Undue transfer of wealth from shareholders to bondholders
A majority of the board is independent of management
Directors have board experience with companies regarded as having sound governance
practices.
Directors identify with managers' interests rather than those of the shareholders -
ANSWER-Directors identify with managers' interests rather than those of the
shareholders
Which of the following best describes the corporate governance responsibilities of
members of the board of directors?
Appoints the mid-level managers responsible for executing the firm's strategy.
Establish and approve the mission, vision, objectives and long-term strategy of the of
company.
Ensure that the board negotiates with the company over all matters such as
compensation.
Ensure that at board meetings, dissent is regarded as an obligation. - ANSWER-
Establish and approve the mission, vision, objectives and long-term strategy of the of
company.
, During a recent luncheon, Angus Rahamut and Dan Riding became engaged in a
discussion of issues related to corporate governance. Neither of these individuals is an
expert in the field of corporate governance and either of them may have made an
inaccurate statement. Which of the following is most likely to be an inaccurate
statement?
Board members must have the experience and qualifications necessary for them to be
able to make decisions independently from the firm's management.
To be independent, a board member must not have any material relationship with the
firm's executive management or their families.
In order to avoid conflicts of interest, board members should seek management
approval prior to hiring external advisors.
Board members appoint the corporate officers responsible for managing the firm and
implementing corporate strategy - ANSWER-In order to avoid conflicts of interest, board
members should seek management approval prior to hiring external advisors.
There are a lot of issues to consider in determining board independence.
Independence, as it relates to board members, refers to:
Avoidance of material conflicts of interest.
Representation of the shareholders interest independent of other stakeholders
The degree to which these persons are not biased or otherwise controlled by firm
management or the outside audit group.
the degree to which these persons are not biased or otherwise controlled by firm
management or other groups which may have some degree of control over
management. - ANSWER-the degree to which these persons are not biased or
otherwise controlled by firm management or other groups which may have some degree
of control over management.
Which of the following practices should be included in a firm's code of ethics?
Providing the board with relevant corporate information in a timely manner and
prohibiting board members or other insiders from purchasing stock before shareholders
can make purchases.
Prohibiting board members or other insiders from purchasing stock before shareholders
can make purchases.
Providing the board with relevant corporate information in a timely manner and allowing
board members or other insiders to purchase stock before shareholders can make
purchases. - ANSWER-Providing the board with relevant corporate information in a
timely manner and prohibiting board members or other insiders from purchasing stock
before shareholders can make purchases.
The audit committee of a company's Board of Directors is most likely to act in the
interests of shareholders when:
a reliable communication "firewall" is in place between the committee and the
company's internal auditors.
a company office other than the
the committee has authority to prevent the company from engaging in non-audit
business relationships with its external auditors - ANSWER-the committee has authority
QUESTIONS AND ANSWERS
Regarding corporate governance, which of the following areas of responsibility is a
board committee least likely to be created?
Nominations to the board
Ethics
Compensation of the executive management
Adhering to audit standards - ANSWER-Ethics
A strong corporate code of ethics is vitally important. Which of the following statements
concerning a firm's code of ethics is least likely accurate?
A firm's code of ethics sets standards for ethical conduct based on basic principles of
integrity, trust and honesty.
A whistleblower procedure should be implemented as a management tool to support
internal audit department
A firm's code of ethics should require clear disclosure of any advantages given to the
firm's insiders that are not also offered to shareholders.
As part of investor review of the firm's ethical climate, investors should determine
whether the firm gives the board access to relevant corporate information in a timely
manner. - ANSWER-A firm's code of ethics should require clear disclosure of any
advantages given to the firm's insiders that are not also offered to shareholders.
Which of the following is an example of a conflict of interest that an effective corporate
governance system would mitigate or eliminate?
Undue transfer of wealth from shareholders to bondholders
A majority of the board is independent of management
Directors have board experience with companies regarded as having sound governance
practices.
Directors identify with managers' interests rather than those of the shareholders -
ANSWER-Directors identify with managers' interests rather than those of the
shareholders
Which of the following best describes the corporate governance responsibilities of
members of the board of directors?
Appoints the mid-level managers responsible for executing the firm's strategy.
Establish and approve the mission, vision, objectives and long-term strategy of the of
company.
Ensure that the board negotiates with the company over all matters such as
compensation.
Ensure that at board meetings, dissent is regarded as an obligation. - ANSWER-
Establish and approve the mission, vision, objectives and long-term strategy of the of
company.
, During a recent luncheon, Angus Rahamut and Dan Riding became engaged in a
discussion of issues related to corporate governance. Neither of these individuals is an
expert in the field of corporate governance and either of them may have made an
inaccurate statement. Which of the following is most likely to be an inaccurate
statement?
Board members must have the experience and qualifications necessary for them to be
able to make decisions independently from the firm's management.
To be independent, a board member must not have any material relationship with the
firm's executive management or their families.
In order to avoid conflicts of interest, board members should seek management
approval prior to hiring external advisors.
Board members appoint the corporate officers responsible for managing the firm and
implementing corporate strategy - ANSWER-In order to avoid conflicts of interest, board
members should seek management approval prior to hiring external advisors.
There are a lot of issues to consider in determining board independence.
Independence, as it relates to board members, refers to:
Avoidance of material conflicts of interest.
Representation of the shareholders interest independent of other stakeholders
The degree to which these persons are not biased or otherwise controlled by firm
management or the outside audit group.
the degree to which these persons are not biased or otherwise controlled by firm
management or other groups which may have some degree of control over
management. - ANSWER-the degree to which these persons are not biased or
otherwise controlled by firm management or other groups which may have some degree
of control over management.
Which of the following practices should be included in a firm's code of ethics?
Providing the board with relevant corporate information in a timely manner and
prohibiting board members or other insiders from purchasing stock before shareholders
can make purchases.
Prohibiting board members or other insiders from purchasing stock before shareholders
can make purchases.
Providing the board with relevant corporate information in a timely manner and allowing
board members or other insiders to purchase stock before shareholders can make
purchases. - ANSWER-Providing the board with relevant corporate information in a
timely manner and prohibiting board members or other insiders from purchasing stock
before shareholders can make purchases.
The audit committee of a company's Board of Directors is most likely to act in the
interests of shareholders when:
a reliable communication "firewall" is in place between the committee and the
company's internal auditors.
a company office other than the
the committee has authority to prevent the company from engaging in non-audit
business relationships with its external auditors - ANSWER-the committee has authority
