Question 1

Moreno is the CEO and Dalton is the CFO of the Sells Corporation,a public corporation which has been in business for eight years.Moreno and Dalton failed to personally certify the company's financial statements.Under the Sarbanes-Oxley Act:

Accepted Answer

Under the Sarbanes-Oxley Act, CEOs and CFOs of public companies are required to personally certify the accuracy of financial statements. Failure to do so can result in criminal penalties.

Question 2

Maureen,a shareholder of Metra,Inc.,was unhappy with how the corporation was being managed.Maureen wanted to be a member of Metra's board of directors.Which statement is correct?

Accepted Answer

Shareholders cannot compel a company to include their name in the proxy statement for board elections; they must conduct their own proxy solicitation.

Question 3

Which of the following is not true in applying the Williams Act?

Accepted Answer

The answer of Which of the following is not true...

Question 4

If a court determines a manager's corporate decision amounted to self-dealing:

Accepted Answer

If a court determines a manager's corporate decision amounted to self-dealing, the business judgment rule will not apply. This means that the manager's decision cannot be shielded under the rule, and they will be held personally liable for their actions. However, the transaction being challenged will not be automatically voided, and the manager's personal liability will depend on the specific circumstances of the case.

Question 5

Who establishes executive compensation?

Accepted Answer

The board of directors is responsible for determining executive compensation, as they are responsible for overseeing the company's management and ensuring that executives are fairly compensated for their performance. Shareholders may have some influence over executive compensation through their voting power, but ultimately it is the board's responsibility to determine and approve executive compensation. Officers themselves should not be responsible for determining their own compensation, as it could create conflicts of interest. An independent CPA firm may be used to provide guidance and advice on compensation practices, but they do not have the authority to determine compensation on behalf of the company.

Question 6

Fashions,Inc.has 52 shareholders.There is no shareholder agreement concerning the board of directors.The company is subject to the Model Act.How many directors is Fashions,Inc.required to have?

Accepted Answer

Under the Model Business Corporation Act, a corporation is required to have at least one director unless otherwise specified in the articles of incorporation or bylaws.

Question 7

The proceeds,if any,of a derivative lawsuit go to:

Accepted Answer

The proceeds, if any, of a derivative lawsuit go to the corporation. This is because derivative lawsuits are brought on behalf of the corporation by shareholders, but any damages awarded are intended to benefit the corporation as a whole, rather than individual shareholders.

Question 8

Jenny is an officer of a corporation.She made a difficult business decision.When challenged about her decision,the court ruled she had acted in good faith and that the business judgment rule applied.As such:

Accepted Answer

The business judgment rule protects officers and directors from personal liability for business decisions made in good faith and with reasonable care. Therefore, choice A is correct. Choice B is incorrect because the ruling already stated that Jenny acted in good faith, so no further review is necessary. Choice C is incorrect because while the ruling may protect Jenny from personal liability, it does not provide complete immunity from a lawsuit. Choice D is incorrect because there is no indication that Jenny must resign from the board.

Question 9

To be successful in a court challenge regarding an executive's compensation,shareholders must prove that:

Accepted Answer

The answer of To be successful in a court challenge...

Question 10

Which of the following is correct concerning anti-takeover efforts?

Accepted Answer

While many states have passed laws to deter hostile takeovers, these statutes have not completely eliminated them. Federal statutes, such as the Poison Pill Act, have had some impact but have not been more effective than state laws overall.

Question 11

Shareholder proposals on the company proxy statement:

Accepted Answer

Shareholder proposals can be withdrawn if the company decides to implement them, which occurs in about half of the cases. This is because companies may view it as a way to avoid a potentially negative vote outcome. A and B are incorrect because the proposals can address other issues besides corporate governance, such as environmental concerns.

Question 12

For the business judgment rule to apply:

Accepted Answer

The business judgment rule applies when a director acts in the best interests of the corporation. While it is always advisable for directors to exercise extraordinary care and avoid conflicts of interest, these factors are not necessary for the business judgment rule to apply. Therefore, choice C is the most accurate answer.

Question 13

What is meant by the term "piercing the corporate veil"?

Accepted Answer

The answer of What is meant by the term "piercing...

Question 14

Alex is on the board of directors of Computers Plus.Computers Plus is looking for a warehouse to purchase.Alex owns a warehouse.In order for Alex to sell his warehouse to Computers Plus:

Accepted Answer

The transaction must be approved by disinterested members of the board of directors to ensure that there is no conflict of interest. Alex should recuse himself from any discussions or votes related to the potential purchase of his warehouse to avoid any appearance of impropriety.

Question 15

In the late 1960s a shareholder of the company that owned the Chicago Cubs baseball team sued the company because the directors refused to install lights in Wrigley Field.The court decided that the directors:

Accepted Answer

The court decided that the directors had a rational purpose for not installing lights, as they believed it would affect the neighborhood and the tradition of day games, thus they were protected by the business judgment rule.

Question 16

Corporate debt:

Accepted Answer

Debentures are a type of long-term unsecured corporate debt.

Question 17

MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called:

Accepted Answer

When a corporation purchases its own stock from shareholders, that stock becomes treasury stock. Choice A (authorized and unissued) refers to stock that has been authorized but not yet issued to investors. Choice B (authorized and issued) refers to stock that has been authorized and sold to investors, but does not account for stock that has been repurchased. Choice D (repurchased stock) is not a commonly used term and is not necessarily a correct term for stock that has been repurchased. Therefore, option C (treasury stock) is the correct answer.

Question 18

The executives of Jornaginn Corporation have decided they need to sell 50,000 additional shares of stock to finance their plans.The executives:

Accepted Answer

The number of shares the executives can sell is limited by the number of shares authorized in the corporate charter. However, this number can be increased by amending the charter and paying a fee. Therefore, the executives can sell the additional shares if they take the necessary steps to increase the authorized shares.

Question 19

The business judgment rule:

Accepted Answer

The business judgment rule allows directors to fulfill their duties without fear of legal repercussions, allows courts to defer to the decisions of business management, and encourages directors to act in the best interest of the company. Therefore, D is the best answer.

Question 20

A board of directors is considering whether to invest a great deal of money into research and development.Such a decision could have a long-term beneficial effect for the company's future.As an alternative,the board could forego the expenditure into research and development and buy back its own shares in order to immediately increase the company's reserves.Which of the below groups would most likely favor the option to increase the company's reserves and not invest in more research and development?

Accepted Answer

Shareholders would be most likely to favor the option to increase the company's reserves and not invest in more research and development, as it would lead to an immediate increase in the value of their shares. Management may be more interested in the long-term benefits of investing in research and development, and stakeholders other than the shareholders may have varying opinions depending on their specific interests.

Quiz 19: Corporations