Question

Which of the following statements is CORRECT?

a. Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.

b. Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns.

c. Relative to proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital.

d. One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than are partners.

e. There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of assets in which it invests

Answer 1

All the option are incorrect except option b Stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns

Option B is correct because the Equityholders are risk takers and Bond holders always want to keep the risk lower as they are not going to be benefitted by the extra returns because they are paid fixed.

Answer - Option B

NOTE: Do upvote the answer, if this was helpful.

NOTE: Please don't downvote directly. In case of query, I will solve it in comment section in no time.