FACG ENDTERM EXAM

Instructions:
1. Total time: 120 minutes
2. !is is an open book exam which means that you are allowed to refer to anything that
has been uploaded on the FACG Google Classroom or the internet but you are not
allowed to communicate with anyone
3. Answers will be hand written and not typed
4. Start each answer on a new page
5. !e limit for each answer is two pages. Anything beyond that won’t be evaluated
6. Each question carries 20 marks
7. Maximum marks: 100

Question no. 1

Explain how GEICO’s profit sharing plan devised by Buffett creates the right incentives for
creating value for its owner.

Question no. 2

According to Warren Buffett, under which two circumstances should a company pay out
almost all of its earnings as dividends? Explain the logic behind these recommendations.

Question no. 3

Stock buybacks are a double edged sword. !ey can be used to enrich existing stockholders
but they can also be used to exploit them. However, they can never be used to create value.
Explain.

Question no. 4

“Earnings are only an estimate but cash is a fact.” Challenge this statement with the help of a
couple of examples.

Question no. 5

According to Buffett and Munger, independent directors cannot be truly independent except
under certain conditions. List and explain those conditions.