CF 1.11 17.02

Q. Which of the following statements regarding stakeholder management is most accurate?

• A. Company management ensures compliance with all applicable laws and regulations.
• B. Directors are excluded from voting on transactions in which they hold material interest.
• C. The use of variable incentive plans in executive remuneration is decreasing.

Which is least likely an example of a principal–agency conflict?

• A. Management agreeing to a takeover by a third party at a premium
• B. Management entering a related-party transaction with a key supplier
• C. Impact on minority shareholders of a company adopting straight voting

Which of the following is most consistent with good corporate governance practices?

• A. All stakeholders should have the right to participate in the governance of the firm.
• B. An audit committee that benefits from the direct guidance of management.
• C. Appropriate controls and procedures to effectively manage the firm should be in place.

Q. The internal rate of return (IRR) is best described as the:

• A. opportunity cost of capital.
• B. time-weighted rate of return.
• C. discount rate that makes the net present value equal to zero.

Based on best practices in corporate governance procedures, it is most appropriate for a company’s compensation committee to:

• A. link compensation with long-term objectives.
• B. include a retired executive from the firm.
• C. include a representative from the firm’s external auditor.

The post-audit performed as part of the capital budgeting process is least likely to include the:

• A. provision of future investment ideas.
• B. rescheduling and prioritizing of projects.
• C. indication of systematic errors.

Q. An investment of $150,000 is expected to generate an after-tax cash flow of $100,000 in one year and another $120,000 in two years. The cost of capital is 10%. What is the internal rate of return?

• A. 28.39%.
• B. 28.59%.
• C. 28.79%.

When a new project reduces the cash flows of an existing project of the same firm, it is best described as a(n):

• A. sunk cost.
• B. opportunity cost.
• C. externality.

Q. An investment of $100 generates after-tax cash flows of $40 in Year 1, $80 in Year 2, and $120 in Year 3. The required rate of return is 20%. The net present value is closest to:

• A. $42.22.
• B. $58.33.
• C. $68.52.

Q. Which of the following issues discussed at a shareholders’ general meeting would most likely require only a simple majority vote for approval?

• A. Voting on a merger
• B. Election of directors
• C. Amendments to bylaws