BA 323 BRINCKS EXAM 1 | ALL QUESTIONS AND
CORRECT ANSWERS | GRADED A+ | NEWEST
VERSION | VERIFIED ANSWERS
What is the main goal of the corporation? - (ANSWER)Maximize shareholder
value.
Who ultimately owns the corporation? What is the relationship between
shareholders, the board of directors, and management? - (ANSWER)Shareholders
ultimately own the corporation. Shareholders vote in the board of directors.
What are the 3 most important management positions? - (ANSWER)Chief
Executive Officer, Chief Financial Officer, and Chief Operations Officer
What is the Sarbanes-Oxley legislation? Why was it passed? - (ANSWER)The
Sarbanes-Oxley legislation holds CEOs and CFOs accountable for their financial
reports. Can be jailed if fraud occurs.
What is the major disadvantages and advantages of corporations compared to
other forms of business organizations? - (ANSWER)Advantages:
Unlimited Life
Easy Transfer of ownership
Limited liability
Ease of raising capital
Disadvantages:
,Double taxation
Cost of setup and report filing
What is a stock's intrinsic value? In an efficient market, will a stock's price equal
the stock's intrinsic value? - (ANSWER)A stock's intrinsic value is its "true" value
in equilibrium. In theory, if the market is efficient the stock's price should equal its
intrinsic value.
Why do shareholders have a conflict of interest with managers? -
(ANSWER)Managers tend to conflict with shareholders since they tend to act
within self-interest (Compensation packages, interventions by shareholders,
threat of firing, and threat of takeover)
•What is corporate governance?
•What are various strategies for aligning the interests of shareholders and
management?
•Change in CEO Compensation starting in the 1980s
•Why is it a good idea for CEO compensation to track an overall market index like
the S&P 500? - (ANSWER)Corporate governance is the act of holding managers
accountable for poor performance.
Strategies to align interests of shareholders and management include:
Using stock as a form of compensation.
Vesting periods.
Stronger oversight by board or outside investors.
, CEO compensation is tracked with an overall market index because it correlates
with the corporations performance.
What is the bondholder-stockholder conflict? Do bondholders prefer safer or risky
corporate investments? - (ANSWER)Stockholders are more likely to prefer riskier
projects for additional gains whereas bondholders prefer safer options.
What is the difference between shareholder theory and stakeholder theory? -
(ANSWER)Shareholders theory states that it is the manager's duty to maximize
shareholder returns while stakeholders theory states that managers have the
ethical duty to ensure that their activities do not harm the community.
Shareholders are involved on a short term basis while stakeholders are involved
on a longterm basis.
•What are the three ways that capital is transferred between savers and
borrowers?
•What are examples of each?
•Which firms/types of firms will use each method? - (ANSWER)The three ways
are:
Direct transfer
Investment banks
Financial intermediaries
CORRECT ANSWERS | GRADED A+ | NEWEST
VERSION | VERIFIED ANSWERS
What is the main goal of the corporation? - (ANSWER)Maximize shareholder
value.
Who ultimately owns the corporation? What is the relationship between
shareholders, the board of directors, and management? - (ANSWER)Shareholders
ultimately own the corporation. Shareholders vote in the board of directors.
What are the 3 most important management positions? - (ANSWER)Chief
Executive Officer, Chief Financial Officer, and Chief Operations Officer
What is the Sarbanes-Oxley legislation? Why was it passed? - (ANSWER)The
Sarbanes-Oxley legislation holds CEOs and CFOs accountable for their financial
reports. Can be jailed if fraud occurs.
What is the major disadvantages and advantages of corporations compared to
other forms of business organizations? - (ANSWER)Advantages:
Unlimited Life
Easy Transfer of ownership
Limited liability
Ease of raising capital
Disadvantages:
,Double taxation
Cost of setup and report filing
What is a stock's intrinsic value? In an efficient market, will a stock's price equal
the stock's intrinsic value? - (ANSWER)A stock's intrinsic value is its "true" value
in equilibrium. In theory, if the market is efficient the stock's price should equal its
intrinsic value.
Why do shareholders have a conflict of interest with managers? -
(ANSWER)Managers tend to conflict with shareholders since they tend to act
within self-interest (Compensation packages, interventions by shareholders,
threat of firing, and threat of takeover)
•What is corporate governance?
•What are various strategies for aligning the interests of shareholders and
management?
•Change in CEO Compensation starting in the 1980s
•Why is it a good idea for CEO compensation to track an overall market index like
the S&P 500? - (ANSWER)Corporate governance is the act of holding managers
accountable for poor performance.
Strategies to align interests of shareholders and management include:
Using stock as a form of compensation.
Vesting periods.
Stronger oversight by board or outside investors.
, CEO compensation is tracked with an overall market index because it correlates
with the corporations performance.
What is the bondholder-stockholder conflict? Do bondholders prefer safer or risky
corporate investments? - (ANSWER)Stockholders are more likely to prefer riskier
projects for additional gains whereas bondholders prefer safer options.
What is the difference between shareholder theory and stakeholder theory? -
(ANSWER)Shareholders theory states that it is the manager's duty to maximize
shareholder returns while stakeholders theory states that managers have the
ethical duty to ensure that their activities do not harm the community.
Shareholders are involved on a short term basis while stakeholders are involved
on a longterm basis.
•What are the three ways that capital is transferred between savers and
borrowers?
•What are examples of each?
•Which firms/types of firms will use each method? - (ANSWER)The three ways
are:
Direct transfer
Investment banks
Financial intermediaries
