Question

Financial Management (Explain how answer was reached)

4. Which of the following statements is CORRECT?

a. A good goal for a firm’s management is maximization of expected EPS.

b. Most business in the U.S. is conducted by corporations, and corporations’ popularity results primarily from their favorable tax treatment.

c. Because most stock ownership is concentrated in the hands of a relatively small segment of society, firms' actions to maximize their stock prices have little benefit to society.

d. Corporations and partnerships have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability, but the liability of all investors in the other types of businesses is more limited.

e. The potential exists for agency conflicts between stockholders and managers.

Answer 1

The potential exists for agency conflicts between stockholders and managers is
CORRECT statement because corporation's managers may have personal goals that
compete with the owner's goal of maximization of shareholder wealth.