Which of the following is CORRECT? a. One advantage of operating a business as a corppration is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in partnership. b. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk high return project rather than low risk low return. c. Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk low return projects rather than high risk high return project. d. One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor. e. Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.
Which of the following is CORRECT?
a. One advantage of operating a business as a corppration is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double
b. Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk high return project rather than low risk low return.
c. Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk low return projects rather than high risk high return project.
d. One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor.
e. Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.
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