• University of Calgary

• MGST 451

MGST 451 – L01-05 – Winter 2019 – Practice Final Exam Question 1 There is an opportunity cost to bad governance; thus, by replacing bad governance with good governance, it is possible to increase firm value (i.e. good governance is a positive NPV project). a) True b) False Question 2 It is usually feasible and cost-effective to reduce agency costs to zero. a) True b) False Question 3 The ‘market for corporate control’ has an influence over corporate governance of firms through the following change of control mechanisms: 1) Proxy fight 2) Staggered board 3) Purchase of shares 4) Merger a) Only 1 and 2 above b) Only 2 and 3 above c) Only 1, 2 and 3 above d) Only 1, 3 and 4 above e) 1, 2, 3 and 4 above Question 4 In a freezeout merger, minority shareholders are forced to accept the tender offer price, or else they might be left with nothing. a) True b) False 2 Question 5 Taking a long at-the-money straddle position is suitable as an investment strategy when the investor is… a) Certain that the underlying share price will stay in a narrow range around the price of the option at the time the option position was taken. b) Certain that the underlying share price will move up or down significantly within the life of the options. c) Certain that the underlying share price will only decline significantly within the life of the options. d) Certain that the underlying share price will only increase significantly within the life of the options. e) None of the above Question 6 Some European countries have firms with a two-tier board structure. a) True b) False Question 7 A bearish investor who goes long a put option has limited profit potential. a) True b) False Question 8 When employee stock options become deep out-of-the money, their effectiveness as a tool to motivate Executives generally increases.