Question

1. One of the objectives of corporate governance reform is to,

A. introduce expensive and burdensome accounting reforms.

B. strengthen the protection of outside investors from expropriation by managers and controlling insiders.

C. none of the options

D. provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace.

2. Free cash flow refers to

A. a firm's cash reserve in excess of tax obligation.

B. a firm's income tax refund that is due to interest payments on borrowing.

C. a firm's cash reserve in excess of interest and tax payments.

D. a firm's funds in excess of what's needed for undertaking all profitable projects.

3. Which of the following statements describes “activist investors”?

A. all of the above

B. invests in stocks of a company for the explicit purpose of influencing the company’s management

C. plays an important role in promoting shareholder’s interests.

D. can influence a company to repurchase stocks.

Answer 1

Sol:

1. Option b

Reason : Corporate governance not only integrate core of the company but also outside investors from expropriation by managers.

2. Option c

Reason : FCF is calculated from profit after tax and interest so it is excess of tax and interest.

3. Option A

Reason : All the available options are explaining activist investors.