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 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.
Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior?
MNCs generally do not need to hedge because shareholders can hedge their own risk.
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True
False
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- It is an axiom that may be characterized by managers making decisions that conflict with the best interest of the shareholders. a. the risk-return trade-off b. the agency problems c. the curse of competitive markets d. stockholders versus managersarrow_forwardWhich 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 directorsarrow_forward6. Why do firms accept underpricing of their initial public offerings (IPOs)?arrow_forward
- How does a hostile takeover affect the company’s stakeholder (shareholders, executives, employees, and society in general)? Is it usually beneficial or detrimental to these stakeholders? Why?arrow_forwardWhich 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_forwardWhat do you think is the main issue of conflict between the stockholders and managers?arrow_forward
- In your opinion, what is the most compelling justification for a forward stock split?arrow_forwardSuppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forwardWhich 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_forward
- Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders’ interest rather than their own?arrow_forwardWhich of the following statements is FALSE? When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently. O When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information. Since stock markets aggregate the information and views of many different investors, we expect the stock price to react quickly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock. If the profit opportunities from having private expertise are large, other individuals will attempt to gain the expertise and devote at least as large amount of resources needed to acquire it.arrow_forwardWhy is it reasonable to ignore diversifiable risk and care only about nondiversififiable risk? What about an investor who puts all of his money into only a single risky stock? Can he properly ignore diversififiable risk?arrow_forward
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