Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 20, Problem 11DQ
Why do management and stockholders often have divergent viewpoints about the desirability of a takeover? (LO20-5)
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Which of the following statements is false?
Group of answer choices
a.If management does not consider the needs of the bondholders of a firm, they could end up destroying shareholder value
b.If management chooses to ignore the needs of bondholders when structuring a firm, the firm can be expected to have to pay a higher interest rate on its debt
c.In a perfect capital market, if a firmʹs current capital structure is not optimal, one can expect that firm to be a takeover target
d.Management should focus only on the needs of a firmʹs shareholders since they are the true owners of the firm and, as such, they elect the firmʹs directors
Which of the following is NOT normally regarded as being a barrier to hostile takeovers?
a. Abnormally high executive compensation.
b. Targeted share repurchases.
c. Poison pills.
d. Shareholder rights provisions.
e. Restricted voting rights.
Suppose a public company compensates its risk averse managers with stock awards rather than stock options, and the company's stock price has fallen precipitously. In this setting, using stock awards will induce more risk taking by management versus the use of stock options.
Question options:
a) True
b) False
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- According to the critics of stock price maximisation, “A practical problem with stock price as a performance measure is that it depends on a whole array of factors outside the company’s control. One can never be certain whether an increase in stock price reflects improving company performance or other environmental factors” (Higgins, Koski & Mitton, 2022, p. 60) In not more than 200 words, discuss the above quotation using GameStop Debacle as a case study.arrow_forwardIf the bid fails in a hostile tender offer, what impact will it have on the market price? A. Market price falls because the minority owner was unable to complete the offer B. Market price stays the same because it is apparent that no one wants to buy the stock C. Market price increases because the minority owner has signaled to the market that shares are worth more D. None of the abovearrow_forwardMany firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?arrow_forward
- Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. Compensating managers with stock options. b. Abolishing the Security and Exchange Commission. c. The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. d. Financing risky projects with additional debt. e. The threat of hostile takeovers.arrow_forwardIn your opinion, what is the most important reason for a forward stock split?arrow_forwardWhich of the following is an advantage of a restricted-stock plan? A.The stock never becomes completely worthless. B.The plan creates new job opportunities in a company. C.The issuance of the stock increases the profit of a company. D.The creation of the plan increases the market price of the stock.arrow_forward
- Which of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forwardWhy is a dissenting stockholder who demands payment of his shares no longer allowed to withdraw from his decision?arrow_forwardp12 According to the pecking order theory, managers are less likely to use which of the following sources of financing? Retained earnings New preferred stock New common stock New debtarrow_forward
- Q5. Which of the following factors often affects hostile takeover bids? The takeover premium The composition of the board of the target firm The composition of the ownership of the target’s stock The target’s bylaws All of the abovearrow_forwardwhich of the following statements is true? Select one: Investors sell a stock when required return is less than expected return and buy a stock when required return above expected return None of the answers are correct Investors buy a stock when it is under-valued and sell it when it is over-valued Investors sell a stock when it is under-valued and buy it when it is over-valued.arrow_forwardwhich one is correct please confirm? QUESTION 21 Finance researcher Myron Gordon argues that ____. a. the clientele effect has no influence on share value b. the existence of transaction costs has no impact on the dividend decision c. dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value d. risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to declinearrow_forward
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