Applying the M-M Theorem: In the presence of information asymmetry between insider/manager and outside investors, which of the following should produce larger firm value for a pre-IPO startup firm?

Applying the M-M Theorem: In the presence of information asymmetry between insider/manager and outside investors, which of the following should produce larger firm value for a pre-IPO startup firm?

a. Private equity financing from Venture Capital
b. Debt financing from Banks
c. Debt financing from Insurance Companies
d. None of the above financing method will produce larger firm value


Answer: a. Private equity financing from Venture Capital

Applying the M-M Theorem: When there is NO market imperfection, which of the following corporate financing should produce larger firm value?

Applying the M-M Theorem: When there is NO market imperfection, which of the following corporate financing should produce larger firm value?

a. Debt financing from Banks
b. Public equity financing from Initial Public Offering (IPO)
c. Private equity financing from Venture Capital
d. None of the above financing method will produce larger firm value


Answer: d. None of the above financing method will produce larger firm value

Which of the followings are Capital Market Imperfections: I) Agency Costs; II) Corporate Governance and Control; III) Financial Distress; IV) Information Asymmetry; V) Taxes.

Which of the followings are Capital Market Imperfections: I) Agency Costs; II) Corporate Governance and Control; III) Financial Distress; IV) Information Asymmetry; V) Taxes.

a. I, II, and III only
b. I, II, and V only
c. I, II, III, and IV only
d. I, II, III, IV, and V


Answer: d. I, II, III, IV, and V

Informational asymmetry exists when:

Informational asymmetry exists when:

a. Insider/manager has less information than outsider/shareholders
b. Insider/manager has more information than outsider/shareholders
c. Insider/manager and outsider/shareholders share the same set of information
d. There is no outsider in the corporate financial system


Answer: b. Insider/manager has more information than outsider/shareholders