1. Which of the following helps ensure that managers operate in their stockholders' interests rather than their...

Fantastic news! We've Found the answer you've been seeking!

Question:

1. Which of the following helps ensure that managers operate in their stockholders' interests rather than their own personal interests?

a. The threat of firing by the board of directors.

b. The threat of a hostile takeover possibly resulting in top managers losing their jobs. If the stock price is below its intrinsic value, this threat is magnified.

c. Compensation packages designed to provide incentives for management to maximize the long-run stock price.

d. All of these choices are help keep management focused on stockholders' interests as reflected in maximizing the long-run stock price.

2. The value of any business other than a relatively small one will be maximized if it is organized as a corporation for which of the following reasons?

a. Limited liability reduces investors' risk, and other things held constant, the lower the firm's risk the higher its value.

b. A firm's value is dependent on its growth opportunities, which are dependent on a firm's ability to attract capital. Because corporations are better able to attract capital than other types of businesses, they are better able to take advantage of growth opportunities.

c. A firm's value is dependent on its liquidity. Because a corporation's stock is easier to transfer to a potential buyer than other businesses' interests, a corporate investment is relatively liquid, and this enhances a corporation's value.

d. Statements "Limited liability reduces investors' risk, and other things held constant, the lower the firm's risk the higher its value", "A firm's value is dependent on its growth opportunities, which are dependent on a firm's ability to attract capital. Because corporations are better able to attract capital than other types of businesses, they are better able to take advantage of growth opportunities", and "A firm's value is dependent on its liquidity. Because a corporation's stock is easier to transfer to a potential buyer than other businesses' interests, a corporate investment is relatively liquid, and this enhances a corporation's value" are all true.

e. None of the statements are true.