FIN 534 Make up 2

Question 1

• What are the two primary forms of corporate governance provisions that correspond to the stick and the carrot?
• What factors improve the effectiveness of a board of directors?
• What are three provisions in many corporate charters that deter takeovers?

Question 2

The Wei Corporation expects next year’s net income to be $15 million. The firm’s debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei’s dividend payout ratio be next year?