Transparency in financial accounting

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Reference no: EM13790110

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

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

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

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

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

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

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

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

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

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

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

Reference no: EM13790110

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