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

d. 
Reducing the threat of corporate takeover increases the likelihood that managers will act in shareholders' interests.

 
e. 
Bond covenants are designed to protect bondholders and to reduce potential conflicts between stockholders and bondholders.

 
ANSWER:  
e


 
57. Which of the following statements is CORRECT?
 
a. 
A good goal for a firm's management is the maximization of expected EPS.

 
b. 
Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment.

 
c. 
Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.

 
d. 
Corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.

 
e. 
For a stock to be in equilibrium, its intrinsic value must be greater than the actual market price.

 
ANSWER:  
c


 
58. Which of the following statements is CORRECT?
 
a. 
One disadvantage of organizing a business as a corporation rather than a partnership is that the equity investors in a corporation are exposed to unlimited liability.

 
b. 
Using restrictive covenants in debt agreements is an effective way to reduce conflicts between stockholders and managers.

 
c. 
Managers generally welcome hostile takeovers since the "raider" generally offers a price for the stock that is higher than the price before the takeover action started.

 
d. 
The managers of established, stable companies sometimes attempt to get their state legislatures to ​impose rules that make it more difficult for raiders to succeed with hostile takeovers.

 
e. 
Most business in U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment.

 
ANSWER:  
d


 
59. Which of the following statements is CORRECT?
 
a. 
Well-designed bond covenants are useful for reducing potential conflicts between stockholders and managers.

 
b. 
The bid price in a hostile takeover is generally above the price before the takeover attempt is announced, because otherwise there would be no incentive for the stockholders to sell to the hostile bidder and the takeover attempt would probably fail.

 
c. 
Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

 
d. 
Takeovers are most likely to be attempted if the target firm's stock price is above its intrinsic value.

 
e. 
The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden.

 
ANSWER:  
b


 
60. Which of the following statements is CORRECT?
 
a. 
Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management.

 
b. 
The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden.

 
c. 
The managers of established, stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers.

 
d. 
In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that primarily involve research and development.

 
e. 
Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

 
ANSWER:  
a


 
61. Which of the following statements is CORRECT?
 
a. 
One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners.