Why Do Corporations Want to Keep the Price of Their

question 151

Multiple Choice

Why do corporations want to keep the price of their stock high?

• A)A higher stock price increases the funds the firm can raise when it sells a given amount of stock.
• B)Corporations can pay their managers lower salaries and avoid principal-agent problems when stock prices are higher.
• C)Higher stock prices are correlated with lower expected profitability.
• D)All of the above provide incentive for corporations to keep the price of their stock high.

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Definitions:

Fair Value

The sum likely to be fetched for selling an asset or the expense incurred to pass on a liability, within a structured deal among participants in the market at the time of assessment.

NCI

Non-Controlling Interest, which refers to shareholders' equity in a subsidiary not attributable to the parent company.

Issued Capital

The total value of a company's shares that have been issued and are held by shareholders.