FIN 420 EXAM 1 QUESTIONS AND ANSWERS
Bill owns 60% shares of Firm C, which owns 50% shares of Firm D. If Bill doesn't
directly own any shares of Firm D, he has _______ cash flow rights on Firm D. -
Answers :30%
The following conditions occur for a market to be considered efficient - Answers :-There
are a large number of rational, profit-maximizing investors who actively participate in the
market.
-Information is costless and widely available to market participants at approximately the
same time.
-Arbitrageurs react quickly and fully to the new information, causing stock prices to
adjust accordingly.
Investors tend to sell assets whose prices have increased and keep assets whose
prices have decreased. This phenomenon is known as the: - Answers :Disposition
effect.
The officers of a public company have a fiduciary duty to manage the firms in the best
interests of the shareholders in civil law, but not common law countries. - Answers
:False
In the case of Ben & Jerry's Homemade, what type of asset-control devices was used
by management and the state of Vermont? - Answers :-Vermont legislature gives the
directors of Vermont corporation the authority to consider the interest of the
stakeholders.
-The company set up staggered board.
-The company set up differential voting rights.
One of the key reasons that Ben & Jerry became the takeover target is that the firm has
a low valuation and hence acquirers consider the firm "on sale". - Answers :True
In the case of Ben & Jerry's Homemade, what decision did Morgan face? - Answers
:Morgan needed to choose either to defend the ongoing agenda of the current
management team or to support an outside takeover offer.
In most European countries such as France and Germany, shareholder profit
maximization is the top priority when running businesses. - Answers :False
In the Warren E. Buffett, 2015 case, what was the stock market reaction when the
acquisition of PCP by Berkshire Hathaway was announced? - Answers :Acquirer's stock
price went down; target's stock price went up.
Bill owns 60% shares of Firm C, which owns 50% shares of Firm D. If Bill doesn't
directly own any shares of Firm D, he has _______ cash flow rights on Firm D. -
Answers :30%
The following conditions occur for a market to be considered efficient - Answers :-There
are a large number of rational, profit-maximizing investors who actively participate in the
market.
-Information is costless and widely available to market participants at approximately the
same time.
-Arbitrageurs react quickly and fully to the new information, causing stock prices to
adjust accordingly.
Investors tend to sell assets whose prices have increased and keep assets whose
prices have decreased. This phenomenon is known as the: - Answers :Disposition
effect.
The officers of a public company have a fiduciary duty to manage the firms in the best
interests of the shareholders in civil law, but not common law countries. - Answers
:False
In the case of Ben & Jerry's Homemade, what type of asset-control devices was used
by management and the state of Vermont? - Answers :-Vermont legislature gives the
directors of Vermont corporation the authority to consider the interest of the
stakeholders.
-The company set up staggered board.
-The company set up differential voting rights.
One of the key reasons that Ben & Jerry became the takeover target is that the firm has
a low valuation and hence acquirers consider the firm "on sale". - Answers :True
In the case of Ben & Jerry's Homemade, what decision did Morgan face? - Answers
:Morgan needed to choose either to defend the ongoing agenda of the current
management team or to support an outside takeover offer.
In most European countries such as France and Germany, shareholder profit
maximization is the top priority when running businesses. - Answers :False
In the Warren E. Buffett, 2015 case, what was the stock market reaction when the
acquisition of PCP by Berkshire Hathaway was announced? - Answers :Acquirer's stock
price went down; target's stock price went up.
