Question 1: 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?

• 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

Question 2: Tactics that firms use to avoid hostile takeovers include:

• greenmail
• shareholder rights provisions.
• restricted voting rights.
• poison pills.
• all of the above

Question 3: 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

Question 4: 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

Question 5: 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

Question 6: 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

Question 7: 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

Question 8: 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

Question 9: 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

Question 10: 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