Question

which of the following statements is correct?
a good goal for a firms management is the maximization of expected eps.
most business in the u.s. is conducted by corporations, and corporations popularity results primarily from their favorable tax treatment.
conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.
corporations and partnerships have an advantage over proprietorships because a proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.
for a stock to be in equilibrium, its intrinsic value must be greater than the actual market price.

Explanation:

1. Maximizing expected EPS is not the best goal as it may not consider long - term value and risk.
2. Corporations' popularity is not mainly due to favorable tax treatment as they face double - taxation in some cases.
3. Hostile takeovers can discipline managers and reduce conflicts between stockholders and managers. If managers don't act in stockholders' best interests, a hostile bidder may take over the company.
4. In partnerships, general partners have unlimited liability too.
5. For a stock to be in equilibrium, its intrinsic value should equal the actual market price.

Answer:

C. Conflicts can exist between stockholders and managers, but potential conflicts are reduced by the possibility of hostile takeovers.