1.Which of the following will is FALSE?
a. The firm changes its strategy which causes net income to fall; however, the new strategy results in FCFF increasing so firm value should rise (assuming all else is unchanged).
b. Assuming all else is unchanged, paying more in dividends will cause FCFF to fall.
c. The firm embarks on a new strategy. FCFF is unchanged, and the firm is more risky, so firm value falls (assuming all else is unchanged).
d. A CFO is often involved in and may oversee, among other things, investor relations, treasury, and strategic decisions such as mergers and acquisitions.
e. The Federal Reserve has been tapering its monetary easing. This means that it is slowly increasing the cost of money (assuming all else is unchanged).
2.Which of the following is TRUE about corporate governance, and agency relationships, conflicts, and costs?
a. Restrictive covenants restrict management's actions which are meant to hurt investors such as creditors.
b. To reduce agency costs between management and shareholders, it is best to have more insiders as board members.
c. Making managers owners through paying them with stock and stock options could reduce agency conflicts.
d. More debt may lead management to be less wasteful (to reduce the probability of bankruptcy); so more debt increases agency costs.
e. Management not taking on a good risky project in order to protect their employment reduces agency costs.