A) This is an example of asset switching or bait and switch.
B) What the company does with the funds once it raises them isn't the business of the debtholders.
C) This will result in an increase in the value of the debt because the company is riskier.
D) All of the above.
E) None of the above.
G) D) and E)
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A) Lenders will protect themselves from the risk of asset switching by writing debt covenants into loans.
B) Lenders can't legally prevent a firm from engaging in asset switching.
C) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
D) When lenders protect themselves from the risk of asset switching by charging a higher interest rate, the firm's WACC can decrease.
E) A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching.
G) A) and D)
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A) An example of an agency relationship is when the board of directors hires a CEO to run a company.
B) An example of an agency relationship is when the CEO nominates a slate of candidates to be on the board of directors.
C) An example of an agency relationship is when a supervisor hires a forklift operator.
D) The supervisor-employee relation between a production line supervisor and a production line operator is an example of an agency relationship.
E) An agency cost is the wage required to pay someone who is hired to perform a service.
G) B) and D)
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A) An agency relationship is when someone hires someone else to perform a service and gives them decision-making authority.
B) An agency relationship is when an agent hires a principal to perform a service.
C) An agency relationship is when a principal works for an agent.
D) In an agency relationship, the agent delegates authority to the principal.
E) An example of an agency relationship is when the CEO nominates a slate of candidates to be on the board of directors.
G) B) and C)
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A) When lenders protect themselves from the risk of asset switching, the firm's WACC can increase.
B) An example of an agency cost is when the board of directors pays a dividend to shareholders.
C) An example of an agency cost is when an attorney hires an expert witness for a trial.
D) An example of asset switching is an option to exchange one piece of real estate for another.
E) Lenders can't legally prevent a firm from engaging in asset switching.
G) A) and E)
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A) Targeted share repurchases.
B) Shareholder rights provisions.
C) Restricted voting rights.
D) Poison pills.
E) Abnormally high executive compensation.
G) C) and E)
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A) An agency relationship is when a principal hires an agent to perform a service and gives them decision-making authority.
B) An agency relationship is when a principal works for an agent.
C) In an agency relationship, the agent delegates authority to the principal.
D) An example of an agency relationship is when the CEO nominates a slate of candidates to be on the board of directors.
E) An example of an agency relationship is when a supervisor hires a forklift operator.
G) All of the above
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A) One tool of corporate governance is monitoring management.
B) One tool of corporate governance is the choice of how much dividends to pay.
C) A company's matching contribution to a retirement plan is a nonpecuniary benefit
D) One tool of corporate governance is stock repurchases.
E) Corporate governance is better when Directors are also employees of the company so they know the business very well.
G) A) and E)
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A) An example of an agency cost is when an outside investor is only willing to pay less for stock because she thinks the original owner will consume too many perquisites.
B) An example of an agency cost is when the board of directors pays a dividend to shareholders.
C) An example of an agency cost is when an attorney hires an expert witness for a trial.
D) The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost.
E) An example of an agency cost is the salary of the agent hired to work for the principal.
G) B) and C)
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A) Frequently, large boards of directors are less effective than small boards of directors.
B) Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board.
C) The more members of a board of directors, the better its function.
D) A company has an interlocking board of directors if the CEO also serves as the chairman of the board of directors.
E) A company whose board members are elected in staggered terms is said to be an interlocking board of directors.
G) A) and C)
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B) False
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