14) Which of the following statements is false?

a) If the value of the firm's assets exceeds the required debt payment, debt holders are fully repaid.

b) Another way to view corporate debt is as a portfolio of riskless debt and a short position in a call option on the firm's assets with a strike price equal to the required debt payment.

c) Viewing debt as an option portfolio is useful as it provides insight into how credit spreads for risky debt are determined.

d) You can think of the debt holders as owning the firm and having sold a call option with a strike price equal to the required debt payment.

e) None of the above

15) In Canada and Europe, many corporations are run by families that own controlling blocks of shares. The central conflict is between what are called ________ and ________.

a) controlling shareholders; minority shareholders

b) controlling stakeholders; minority stakeholders

c) controlling investors; minority investors

d) controlling creditors; minority creditors

e) None of the above

16) For many start-ups, the first round of outside private equity financing is often obtained from ________ which may also bring expertise to the firm that the entrepreneur lacks. a) venture capital firms b) angel investors c) institutional investors d) corporate investors e) None of the above 6

17) Which of the following statements is false?

a) An American call on a non-dividend-paying stock has the same price as its European counterpart.

b) The price of any call option on a non-dividend-paying stock always exceeds its intrinsic value.

c) It is never optimal to exercise a call option on a dividend-paying stock early - you are always better off just selling the option.

d) If the present value of the dividend payment is large enough, the time value of a European call option can be negative, implying that its price could be less than its intrinsic value.

e) None of the above

18) One of the major differences between a real option and a financial option is that

a) a real option is not traded in competitive markets.

b) a real option is traded in competitive markets.

c) a real option is less risky than a financial option.

d) a real option has more risk than a financial option.

e) None of the above

19) While the Sarbanes-Oxley Act (SOX) contains many provisions, the overall intent of the legislation was to improve the accuracy of information given to both boards and to shareholders. SOX attempted to achieve this goal in all of the following ways EXCEPT

a) Overhauling incentives and independence in the auditing process.

b) Mandating the separation of the positions of CEO and Chairman of the Board.

c) Stiffening penalties for providing false information.

d) Forcing companies to validate their internal financial control processes.

e) None of the above

20) In addition to the value of the current NPV of the investment, what other two factors affect the value of an investment and the decision to wait?

a) Financing sources and capital decision procedures

b) Uncertainty and future cash inflows

c) Financing sources and risks

d) Uncertainty and the capital budgeting process

e) None of the above