Fundamentals of Financial Management: Concise 11th Edition by Eugene F. Brigham test bank

 
e. 
Abolishing the Security and Exchange Commission.

 
ANSWER:  
d


 
52. Which of the following actions would be most likely to reduce potential conflicts between stockholders and bondholders?
 
a. 
Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders).

 
b. 
Compensating managers with more stock options and less cash income.

 
c. 
The passage of laws that make it harder for hostile takeovers to succeed.

 
d. 
A government regulation that banned the use of convertible bonds.

 
e. 
The firm begins to use only long-term debt, e.g., debt that matures in 30 years or more, rather than debt that matures in less than one year.

 
ANSWER:  
a


 
53. Which of the following statements is CORRECT?
 
a. 
If a lower level person in a firm does something illegal, like "cooking the books" to understate costs and thereby artificially increase profits because he or she was ordered to do so by a superior, the lower level person cannot be prosecuted but the superior can be prosecuted.

 
b. 
There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to outsiders. It is illegal to provide such information to federally regulated banks, but it is not illegal to provide it to stockholders because they are the owners of the firm.

 
c. 
If someone deliberately understates costs and thereby causes reported profits to increase, this can cause the stock price to rise above its intrinsic value. The stock will probably fall in the future. Both those who participated in the fraud and the firm itself can be prosecuted.

 
d. 
Ethical behavior is not influenced by training and auditing procedures. People are either ethical or they are not, and this is what determines ethical behavior in business.

 
e. 
​Ethics is not an important consideration in business and in business schools.

 
ANSWER:  
c


 
54. With which of the following statements would most people in business agree?
 
a. 
A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation.

 
b. 
Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees.

 
c. 
"Whistle blowers," because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees.

 
d. 
It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior.

 
e. 
Although people's moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.

 
ANSWER:  
e


 
55. Which of the following statements is CORRECT?
 
a. 
One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the firm's capital structure.

 
b. 
The threat of takeover generally increases potential conflicts between stockholders and managers.

 
c. 
Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.

 
d. 
The threat of takeovers tends to reduce potential conflicts between stockholders and managers.

 
e. 
The creation of the Securities and Exchange Commission (SEC) has eliminated conflicts between managers and stockholders.

 
ANSWER:  
d


 
56. Which of the following statements is CORRECT?
 
a. 
Corporations are taxed more favorably than proprietorships.

 
b. 
Corporations have unlimited liability.

 
c. 
Because of their size, large corporations face fewer regulations than smaller corporations and proprietorships.