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LOS e: Critique the effectiveness of debt as a corporate governance mechanism.
Q1. Which of the following statements regarding debt and its effect on corporate health via corporate governance mechanisms is most accurate?
A) Debt is unambiguously beneficial.
B) Debt is unambiguously detrimental.
C) In some situations it can be beneficial; in others it can be a detriment.
Q2. A firm would like to issue new securities to fund a new project. The firm’s managers have been paid predominantly with equity-based compensation and now hold most of the firm’s stock. If the firm wants to motivate their managers to work harder, which of the following securities should be issued?
A) Shelf registered preferred stock.
B) Common stock.
C) Debt.
Q3. Which of the following statements regarding bankruptcy as a mechanism for enforcing good corporate governance is most accurate?
A) Bankruptcy costs are comparatively minor but bankruptcy does not discipline management to the extent expected.
B) Bankruptcy costs are substantial and bankruptcy provides strong discipline against poor management.
C) Bankruptcy costs are substantial but bankruptcy does not discipline management to the extent expected. | 
发表于 2009-3-10 15:39
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