Which of the following statements is CORRECT?
A) A good goal for a firm's management is the 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) Conflicts can exist between stockholders and managers,but potential conflicts are reduced by the possibility of hostile takeovers.
D) 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.
E) For a stock to be in equilibrium,its intrinsic value must be greater than the actual market price.

Question

Quizplus · Accepted Answer

Conflicts can exist between stockholders and managers in a corporation because stockholders want to maximize their wealth while managers may prioritize their own interests. However, the threat of hostile takeovers, where a third party buys a controlling interest in the corporation and replaces the current management, can reduce potential conflicts.

Option A is incorrect because the goal of maximizing EPS may not be in the best interest of long-term value creation. 
Option B is inaccurate and too simplistic, as there are various factors contributing to the popularity of corporations beyond tax treatment. 
Option D is partially correct but not comprehensive, as partnerships and corporations do have limited liability protection but with differences in taxation and management structures. 
Option E is incorrect because market equilibrium occurs when the market price and intrinsic value are equal, not when intrinsic value is greater than market price.

Which of the Following Statements Is CORRECT