Question

In trying to assure that managerial actions lead to shareholder value maximization, a risk can come about if the market value of a firm becomes less than its book value. The risk is _____________. the threat of hostile takeover the threat of being delisted by the stock exchange the threat that the Securities and Exchange Commission will not allow the firm to declare dividends until the market value once again exceeds the book value the threat of being forced to execute a leveraged buy-out

Answer 1

Answer: statement A, The risk of hostile takeover.

Explanation: As the value of the firm in market becomes even less then its book value the investor or purchasers in the market do not have to pay even the net worth of the firm. Thus, it becomes an attractive target in the eye of market investors. In such a situation the board of directors might reject the offers but the bidder will continue to persuade them for acquisition.