Fundamentals of Financial Management: Concise 11th Edition by Eugene F. Brigham test bank

 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
16. Organizing as a corporation makes it easier for the firm to raise capital. This is because corporations' stockholders are not subject to personal liabilities if the firm goes bankrupt and also because it is easier to transfer shares of stock than partnership interests.
 
a. 
True

 
b. 
False

 
ANSWER:  
True


 
17. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price in the long run, or the stock's "intrinsic value."
 
a. 
True

 
b. 
False

 
ANSWER:  
True


 
18. If management operates in a manner designed to maximize the firm's expected profits for the current year, this will also maximize the stockholders' wealth as of the current year.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
19. In order to maximize its shareholders' value, a firm's management must attempt to maximize the expected EPS.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
20. In order to maximize its shareholders' value, a firm's management must attempt to maximize the stock price on a specific target date.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
21. As a result of financial scandals occurring during the past decade, there has been a strong push to improve business ethics.
 
a. 
True

 
b. 
False

 
ANSWER:  
True


 
22. There are many types of unethical business behavior. One example is where executives provide information that they know is incorrect to banks and to stockholders. It is illegal to provide such information to banks, but it is not illegal to provide it to stockholders because they are the owners of the firm, not outsiders.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
23. A stock's market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock's market price would equal its intrinsic value.
 
a. 
True

 
b. 
False

 
ANSWER:  
True


 
24. If a stock's market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
25. If a stock's intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
26. For a stock to be in equilibrium as the book defines it, its market price should exceed its intrinsic value.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
27. ​The term "marginal investor" means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the "marginal investor" who determines the actual stock price.
 
a. 
True

 
b. 
False

 
ANSWER:  
True


 
28. Managers always attempt to maximize the long-run value of their firms' stocks, or the stocks' intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible.
 
a. 
True

 
b. 
False

 
ANSWER:  
False


 
29. A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken to make them more difficult to undertake.