Which of the Following Statements Is Correct

question 72

Multiple Choice

Which of the following statements is correct?

• A) The major disadvantage of organizing as a corporation is that it does not provide its owners with limited liability.
• B) Bond covenants,or restrictions on debt,are an important device to reduce agency conflicts between stockholders and bondholders.
• C) The threat of a hostile takeover serves to reduce agency conflicts between stockholders and bondholders.
• D) Compensation packages are designed,in part,to reduce agency conflicts between shareholders and managers.
• E) Both answers b and d are correct.

Describe the different types of equity issues, including rights offerings, IPOs, and seasoned offerings.

Understand the costs associated with issuing securities and their impacts on firms and investors.

Grasp the significance and mechanics of the rights offering and its strategic implications for investors.

Identify the various underwriting processes and their implications, including the spread, Green Shoe provisions, and firm commitment underwriting.

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Definitions:

Cost Leadership

A business strategy focused on achieving the lowest operational costs within an industry to offer lower prices than competitors.

Global Integration

The process by which a company combines different global activities so the different parts of the corporation use the same methods.

Per-Unit Costs

The average cost associated with producing or acquiring a single unit of a product or service.

Centralizing Production

The process of consolidating production activities and operations into a single or fewer locations to improve efficiency and control.