Question

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. 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.
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. The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden

Answer 1

Answer: 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.

Step-by-step explanation:

A widely held belief in business is that hostile takeovers mostly occur because managers are performing abysmally.

To this end, the takeover takes place to discipline the poorly performing managers and restore the company to a better position.

It is worthy of note though that recently this view had been challenged by multiple authors but for purposes of this question, A is the correct answer.