Subject: Financing Energy Sector Projects

A venture capital firm:

Option 1: Pools resources to help entrepreneurs start new firms.

Option 2: Allows equity shares of the new firm to be sold in the marketplace.

Option 3: Has no say in the management of the new firm.

Option 4: Increases the size of the moral hazard problem.

Assessment of control risk includes three steps. Which of the following is not one of these steps?

Option 1: Evaluate sufficiency and appropriateness of audit evidence.

Option 2: A final assessment based upon test of controls of operating effectiveness.

Option 3: An initial assessment and response to assessed risk based on the design of internal controls resulting in an audit planning memorandum and audit plan.

Option 4: Obtaining an understanding of internal controls and documentation of the controls

All of the following are reasons to form a captive insurance company EXCEPT:

Option 1: Parent firms are allowed to take tax credits for losses paid by the captive.

Option 2: Premiums paid to a captive, under certain circumstances, may be tax deductible.

Option 3: The captive can serve as another profit center.

Option 4: The parent firm may have difficulty in obtaining some types of insurance.

A deep-discount bond is likely to be of most interest to:

Option 1: Investors who are exempt from Capital Gains Tax.

Option 2: Investors who seek steady incomes.

Option 3: Investors who pay high rates of income tax.

Option 4: Investors who pay low rates of income tax.

Mitigating risk could involve:

Option 1: Identifying risks, obtaining insurance and developing alternatives

Option 2: Contracting and quality assurance

Option 3: Developing standards, buying insurance, and planning for contingencies and alternatives

Option 4: Re-scoping the project and reassessing requirements

Option 5: Both 3 and 4

X Industries is a technology company that prides itself on the ability to react quickly to new product developments. It maintains a significant research and development budget. Regarding risk-reducing activities, X Industries is:

Option 1: More likely to retain risks thereby retaining use of more funds.

Option 2: More likely to retain risk because of their ability to react to changing developments.

Option 3: Less likely to retain risks to concentrate on what they do best.

Option 4: Less likely to retain risk to help ensure they have a steady supply of investment funds.

All of the following are disadvantages of using insurance in a corporate risk management program EXCEPT:

Option 1: Premium payments are not tax deductible.

Option 2: Insurance coverage may be expensive.

Option 3: It may be time consuming to negotiate the coverages and terms.

Option 4: The presence of insurance may lead to reduced incentives to engage in loss control.

Which of the following is not an advantage of a Eurobond?

Option 1: It can often be issued at a lower rate of interest than domestic market bonds.

Option 2: Firms can keep a check on the holders.

Option 3: It facilitates hedging of interest and currency risks in the swaps market.

Option 4: It can often be issued at a higher rate of interest than domestic market bonds.