You are offered a chance to buy an asset for $$5,250$ that is expected to produce cash flows of $$750$ at the end of Year $1,$ $$1,000$ at the end of Year $2,$ $$850$ at the end of Year $3,$ and $$6,250$ at the end of Year $4.$ What rate of return would you earn if you bought this asset?

Group of answer choices

$14\mathrm{.}38\%$

$17\mathrm{.}42\%$

$19\mathrm{.}45\%$

$16\mathrm{.}91\%$

$12\mathrm{.}86\%$

If a firm's board of directors wants to maximize value for its stockholders in general $($as opposed to some specific stockholders$),$ it should design an executive compensation system whose focus is on the firm's long$-$term value.

Group of answer choices

True

False If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Group of answer choices

True

False

Relaxant Inc. operates as a partnership. Now the partners have decided to convert the business into a corporation. Which of the following statements is CORRECT?

Group of answer choices

Relaxant's shareholders $($the ex$-$partners$)$ will now be exposed to less liability.

The company will probably be subject to fewer regulations and required disclosures.

Assuming the firm is profitable, none of its income will be subject to federal income taxes.

The firm's investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.

The firm will find it more difficult to raise additional capital to support its growth.

Which of the following statements is CORRECT?

Group of answer choices

Because bankruptcy requires that corporate bondholders be paid in full before stockholders receive anything, bondholders generally prefer to see corporate managers invest in high risk$/$high return projects rather than low risk$/$low return projects.

Since bondholders receive fixed payments, they do not share in the gains if risky projects turn out to be highly successful. However, they do share in the losses if risky projects fail and drive the firm into bankruptcy. Therefore, bondholders generally prefer to see corporate managers invest in low risk$/$low return projects rather than high risk$/$high return projects.

One advantage of operating a business as a corporation is that stockholders can deduct their pro rata share of the taxes the firm pays, thereby eliminating the double taxation investors would face in a partnership.

One drawback of forming a corporation is that you lose the limited liability that you would otherwise receive as a proprietor.

Potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock.