Corporate Finance - Corporate Finance Section 1

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3. Which of the following is least likely a common interest of shareholders and creditors?

  • Option : C
  • Explanation : Both creditors and shareholders desire high profits, however dividends are only particular to shareholders.
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4. Which of the following scenarios is least likely to create a conflict of interest between shareholders and management?

  • Option : A
  • Explanation : A decision to venture into new markets would increase the company's revenue and profits which is in the interest of both shareholders and employees. In a takeover scenario, the management may fear losing their employment; however, the offer may be attractive for shareholders. Similarly, a proposal to redraft the bonus structure can create a conflict in that shareholders would want to reduce expenses whereas the management would want higher bonuses.
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5. Which of the following is not a function of the board of directors?

  • Option : B
  • Explanation : The board of director's responsibility is to protect shareholder interests and ensure the management works in the best interest of shareholders. Protecting management interests in front of shareholders is not a responsibility of the board.
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