1."Maximizing the value of the firm is usually consistent with maximizing shareholders’ wealth because the payments to debt holders and preferred stock holders are fixed, so if the firm generates additional profits, the benefits usually go to the shareholders." True or false?
a. True
b. False
2. "If the firm is under financial distress, the management has the incentive to forgo a positive NPV project as long as its return is not enough for the firm to avoid bankruptcy. But due to its positive NPV, debt-holders would takeover the firm with more valuable assets. In other words, the project would not save the shareholders but it would make debt-holders better off." True or false?
a. True
b. False