Which of the following statements is CORRECT?
A) Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management.
B) The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden.
C) Hostile takeovers are most likely to occur when a firm's stock sells at a price above its intrinsic value because its management has been issuing overly optimistic statements about its likely future performance.
D) In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that involve primarily research and development.
E) 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.

Question

Quizplus · Accepted Answer

Hostile takeovers occur when a firm's stock is undervalued due to poor management, making it a vulnerable target for acquisition. Therefore, option A is the correct statement. Option B is incorrect because hostile takeovers can lead to increased competition, innovation, and efficiency in the market. Option C is also incorrect because if a firm's stock is overvalued due to unrealistic expectations from management, then it would not be an attractive target for acquisition. Option D is incorrect because bondholders prefer stable investments that provide a consistent return on their investment, whereas stockholders are willing to take on more risk in exchange for potentially higher returns. Option E is incorrect because managers have a fiduciary duty to disclose all material information that could impact the value of the firm's stock, and withholding favorable information would be a violation of this duty.

Which of the Following Statements Is CORRECT