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Which of the following actions would be likely to reduce conflicts of interest between stockholders and managers?

Student Response
Congress passes a law that severely restricts hostile takeovers. 2. A firm's compensation system is changed so that managers receive larger cash salaries but fewer long-term options to buy stock. 3. The company changes the way executive stock options are handled, with all options vesting after 2 years rather than having 20% of the options awarded vest every 2 years over a 10-year period. 4. The company's outside auditing firm is given a lucrative year-by-year consulting contract with the company. 5. The composition of the board of directors is changed from all inside directors to all outside directors, and the directors are compensated with stock rather than cash.

Which of the following statements is CORRECT?

Student Response
1. One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level. 2.
One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership. 3. It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required. 4. If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business. 5. Corporations face fewer regulations than sole proprietorships.

Which of the following statements is CORRECT?

Student Response
1. Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers. 2. Bond covenants are an effective way to resolve conflicts between shareholders and managers. 3.

One advantage to forming a...
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