Question :
[31].Managers always attempt to maximize the long-run value of their : 1416301
[31].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. However, there can be conflicts between stockholders and bondholders.
- True
- False
[32].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.
a.True
b.False
[33].If a firm's board of directors wants to maximize value for its stockholders in general (as opposed to some specific stockholders), it should design an executive compensation system whose goal is to maximize the stock's intrinsic value rather than the stock's current market price.
a.True
b.False
Multiple Choice: Conceptual
Please note that some of the answer choices, or answers that are very close, are used in different questions. This has caused us no difficulties, but please take this into account when you make up exams.
[34].Which of the following statements is CORRECT?
a.One of the disadvantages of incorporating your business is that you could become subject to the firm's liabilities in the event of bankruptcy.
b.Sole proprietorships are subject to more regulations than corporations.
c.In any partnership, every partner has the same rights, privileges, and liability exposure as every other partner.
d.Corporations of all types are subject to the corporate income tax.
e.Sole proprietorships and partnerships generally have a tax advantage over corporations.
[35].Which of the following statements is CORRECT?
a.One of the advantages of the corporate form of organization is that it avoids double taxation.
b.It is easier to transfer one’s ownership interest in a partnership than in a corporation.
c.One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability.
d.One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., “one person, one vote.”
e.Corporations of all types are subject to the corporate income tax.
[36].Which of the following statements is CORRECT?
a.One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
b.Corporations face fewer regulations than sole proprietorships.
c.One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.
d.It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.
e.If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
[37].Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?
a.Relaxant’s shareholders (the ex-partners) will now be exposed to less liability.
b.The company will probably be subject to fewer regulations and required disclosures.
c.Assuming the firm is profitable, none of its income will be subject to federal income taxes.
d.The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.
e.The firm will find it more difficult to raise additional capital to support its growth.
[38].Which of the following statements is CORRECT?
a.Corporations generally face fewer regulations than sole proprietorships.
b.Corporate shareholders are exposed to unlimited liability.
c.It is usually easier to transfer ownership in a corporation than in a partnership.
d.Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
e.There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
[39].Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?
a.Corporations generally face fewer regulations.
b.Less of a corporation’s income is generally subject to federal taxes.
c.Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
d.Corporate investors are exposed to unlimited liability.
e.Corporations generally find it easier to raise large amounts of capital.
[40].The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to
a.Maximize its expected total corporate income.
b.Maximize its expected EPS.
c.Minimize the chances of losses.
d.Maximize the stock price per share over the long run, which is the stock’s intrinsic value.
e.Maximize the stock price on a specific target date.
