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Reading 31 Introduction to Corporate Governance and Other ESG Considerations – Quiz 3

CFA Level 1 – Corporate Finance Reading 31 Introduction to Corporate Governance and Other ESG Considerations Reading 31 Introduction to Corporate Governance and Other ESG Considerations – Quiz 3

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Question 1 of 12
1. Question
Directors with longer tenures:
- A. Provide valuable experience and deeper industry expertise
- B. May cause diversity and adaptability problems.
- C. Both
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Question 2 of 12
2. Question
Which of the following is a warning sign related to executive remuneration policies of a company?
- A. High correlation between executive remuneration and a company’s bottom line.
- B. Executive remuneration is based on a performance parameter related to an earlier phase of a company’s life cycle.
- C. If too high a percentage is in the form of equity.
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Question 3 of 12
3. Question
Which of the following is least likely to limit the pace of change at a company?
- A. Existence of significant cross-holdings.
- B. Presence of a sizable affiliated stockholder.
- C. Presence of an activist shareholder.
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Question 4 of 12
4. Question
Which of the following may be seen as a means of enhancing stability and fostering long-term perspective?
- A. Cross-holdings
- B. Affiliated stockholder
- C. Activist shareholder.
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Question 5 of 12
5. Question
In a number of developed markets, regulatory agencies and stock exchanges have adopted codes of corporate governance which are:
- A. Mandatory.
- B. Implemented on ‘comply or explain’ basis.
- C. Purely optional
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Question 6 of 12
6. Question
ESG factors are most comprehensively addressed in investing via:
- A. Value-based investing approach
- B. Values-based investing approach
- C. Thematic investing
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Question 7 of 12
7. Question
An investing approach which excludes companies with poor track record in ESG factors is called:
- A. Norms-based screening
- B. Positive screening
- C. ESG incorporation
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Question 8 of 12
8. Question
Which ESG investing implementation method maintains benchmark weights of different sectors?
- A. ESG integration
- B. Best-in-class screening
- C. Thematic investing
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Question 9 of 12
9. Question
Which of the following ESG implementation involves most active participation of the investor?
- A. Impact investing
- B. ESG integration
- C. Thematic investing
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Question 10 of 12
10. Question
Environmental factors such as emissions and water usage are most important for:
- A. Utilities and mining companies
- B. Financial institutions
- C. Equally important for all companies
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Question 11 of 12
11. Question
In the context of ESG consideration in pension fund investing, which would result in violation of fiduciary duty of the pension fund?
- A. Including ESG factors in investment policy statement
- B. Integrating ESG considerations in determining an investment’s risk and return
- C. Adopting a positive screening ESG implementation approach
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Question 12 of 12
12. Question
Which of the following is not correct about ESG investing?
- A. Specific accounting standards exist which are relevant to companies disclosing material ESG information.
- B. Consideration of environmental and social factors in investment analysis has lagged implementation of governance factors.
- C. ESG integration in investing has been mainly qualitative in nature.
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Study Session 12: Corporate Finance (1)

Reading 31 Introduction to Corporate Governance and Other ESG Considerations

11 LOSs | 3 Quizzes

Describe corporate governance

Describe a company’s stakeholder groups and compare interests of stakeholder groups

Describe principal–agent and other relationships in corporate governance and the conflicts that may arise in these relationships

Describe stakeholder management

Describe mechanisms to manage stakeholder relationships and mitigate associated risks

Describe functions and responsibilities of a company’s board of directors and its committees

Describe market and non-market factors that can affect stakeholder relationships and corporate governance

Identify potential risks of poor corporate governance and stakeholder management and identify benefits from effective corporate governance and stakeholder management

Describe factors relevant to the analysis of corporate governance and stakeholder management

Describe environmental and social considerations in investment analysis

Describe how environmental, social, and governance factors may be used in investment analysis

Reading 32 Capital Budgeting

7 LOSs | 3 Quizzes

Describe the capital budgeting process and distinguish among the various categories of capital projects

Describe the basic principles of capital budgeting

Explain how the evaluation and selection of capital projects is affected by mutually exclusive projects, project sequencing, and capital rationing

Calculate and interpret net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI) of a single capital project

Explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods

Contrast the NPV decision rule to the IRR decision rule and identify problems associated with the IRR rule

Describe expected relations among an investment’s NPV, company value, and share price

Reading 33 Cost of Capital

12 LOSs | 3 Quizzes

Calculate and interpret the weighted average cost of capital (WACC) of a company

Describe how taxes affect the cost of capital from different capital sources

Describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined

Explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget

Explain the marginal cost of capital’s role in determining the net present value of a project

Calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach

Calculate and interpret the cost of noncallable, nonconvertible preferred stock

Calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yieldplus risk-premium approach

Calculate and interpret the beta and cost of capital for a project

Describe uses of country risk premiums in estimating the cost of equity

Describe the marginal cost of capital schedule, explain why it may be upward sloping with respect to additional capital, and calculate and interpret its break-points

Explain and demonstrate the correct treatment of flotation costs

Study Session 11: Corporate Finance (2)

Reading 34 Measures of Leverage

5 LOSs | 2 Quizzes

Define and explain leverage, business risk, sales risk, operating risk, and financial risk and classify a risk

Calculate and interpret the degree of operating leverage, the degree of financial leverage, and the degree of total leverage

Analyze the effect of financial leverage on a company’s net income and return on equity

Calculate the breakeven quantity of sales and determine the company’s net income at various sales levels

Calculate and interpret the operating breakeven quantity of sales

Reading 35 Working Capital Management

7 LOSs | 3 Quizzes

Describe primary and secondary sources of liquidity and factors that influence a company’s liquidity position;

Compare a company’s liquidity measures with those of peer companies

Evaluate working capital effectiveness of a company based on its operating and cash conversion cycles and compare the company’s effectiveness with that of peer companies

Describe how different types of cash flows affect a company’s net daily cash position

Calculate and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company’s short-term investment policy guidelines

Evaluate a company’s management of accounts receivable, inventory, and accounts payable over time and compared to peer companies

Evaluate the choices of short-term funding available to a company and recommend a financing method

Corporate Finance – Exam

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