Deck 4: External Analysis: The financial Environment

Question 1

Financial markets exert little influence on the firm's strategy

Answer 1

False
Financial markets have a significant influence through their ability to limit the firm's access to debt and new equity

Question 2

Depreciation charges are subjective numbers

Answer 2

True
These are based on the estimated life of an asset, and since there are many different ways of charging off the cost over time they are subjective

Question 3

Dividends are a legal liability of the firm

Answer 3

False
A firm is not legally obliged to pay a dividend

Question 4

Firms never compete with governments

Question 5

A takeover bid is always challenged by incumbent management

Question 6

Management can create economic value without creating a return for shareholders

Question 7

In the event of insolvency, unsecured creditors are paid before shareholders

Question 8

All governments regulate the financial markets that fall under their jurisdiction

Question 9

German banks are not permitted to own equities

Question 10

Regulatory frameworks are very similar in different countries

Question 11

Many countries are trying to improve the liquidity and transparency of their financial markets

Question 12

Europe is witnessing a long-term trend away from hostile takeovers

Question 13

In most financial markets, the proportion of equity held by institutions has been increasing

Question 14

Auditors are always objective

Question 15

Ratings agencies are paid by the issuers of the instruments they are rating

Question 16

The risk/return relationship may be non-linear

Question 17

Share repurchases are often tax-efficient for investors

Question 18

Senior management do not need to understand of valuation models

Question 19

Market value added is the difference between market capitalization and the amount of debt

Question 20

Derivatives can be a sound means to control risk