What does the separation theorem demonstrate?
A)Firms that separate share price and cost minimize costs and thus produce more goods, which benefits society.
B)Firms should separate their management decisions between those that benefit society and those that benefit shareholders.
C)All investors are better off when firms separate their investment decisions from the preferences of their owner/investors.
D)Investors that own shares directly should be separated from investors that own shares indirectly.

Question

Quizplus · Accepted Answer

The separation theorem demonstrates that all investors are better off when firms separate their investment decisions from the preferences of their owner/investors. This means that a firm's investment decisions should be based on maximizing profits and minimizing risks, rather than pleasing shareholders or other stakeholders. This allows investors to choose investments that match their individual preferences and risk tolerance, which improves their overall welfare.

What Does the Separation Theorem Demonstrate