Coorporate issuers

Question 1

Market factors are

Answer 1

shareholder engagement, shareholder activism and competition and markets

Question 1

Stronger corporate governance

Answer 1

can have many benefits including; operational efficiency, improved control, better operating and financial performance and lower default risk and cost of debt.

Question 2

A pull on liquidity is when

Answer 2

> disbursements are paid too quickly or trade credit availability is limited
making payments too early; reduced credit lines from suppliers due to late payments; limits of short-term lines of credit; low liquidity positions

Question 3

Perquisite consumption refers to

Answer 3

> the level of spending that company executives are allowed to legally spend including on such things as company cars and hospitality.
Higher perquisite consumption will increase equity agency costs.

Question 4

The pecking order theory suggests

Answer 4

> that managers will prefer to raise capital using the method which revels the least information about the internal operations of the company.
this usually means using internally generated capital first.
issue equity when they believe that it is overvalued by the market. As such investors may take the decision to issue equity as being a negative signal

Question 5

Higher levels of information asymmetry between managers and investors places investors at greater risk. As such

Answer 5

both providers of debt capital and providers of equity capital will expect higher returns than otherwis

Question 6

Freemium pricing

Answer 6

allows a certain level of usage or functionality of goods and services without charge

> growth strategy

Question 7

Penetration pricing

Answer 7

is an approach which uses discounted pricing to gain market penetration

> growth strategy

Question 8

An aggregator is a type of marketplace

Answer 8

where a company remarkets products such as the computer games under its own branding.

Question 9

Limited partners cannot replace the

Answer 9

general partner

Question 10

eu corporations pay

Answer 10

corporate tax + income tax

Question 11

All of the profits and losses of a general partnership are

Answer 11

collectively shared by the general partners. If one partner is unable to pay their share of the debt, then the remaining partners remain fully liable collectively for the debt.

Question 12

In a two-tier structure

Answer 12

the management board run the company but are supervised by the supervisory board.
the supervisory board is mainly comprised of non-executive directors whilst the management board is composed of executive directors.

Question 13

A one-tier board

Answer 13

is comprised of both executive and non-executive directors.

Question 14

responsibility of the board of directors

Answer 14

Ensuring the effectiveness of the company’s audit and control systems
Ensuring leadership continuity through succession planning

Question 15

Income is paid to debt holders pre corporation tax but paid to equity holders post corporation tax.

Question 16

It is senior management that is responsible for implementation of strategy. The Board will, however, oversee the execution of the strategy.

Question 17

Use the market values if given a choice between market value and par value of debt and equity

Question 18

The target structure and the optimal structure may be the same, but

Answer 18

> the market values are constantly varying and other factors such as the cost of issuing securities mean that this is often not the case.
companies will keep them within a range.

Question 19

MM I with corporate taxes states that the

Answer 19

market value of a leveraged company is equal to the value of an unleveraged company plus the value of the debt tax shield.

Question 20

MM II without corporate taxes states that the

Answer 20

cost of equity is a linear function of the company’s debt to equity ratio.

Question 21

MM II with corporate taxes states that the cost of equity

Answer 21

is a linear function of the company’s debt-to-equity ratio with an adjustment for the tax rate.