Suppose Ernie gives up his job as a financial advisor to P. E.T. S., where he earned $30,000 per year, to open up a store selling pet-care products. He invested $10,000 in the store, which was originally savings that earned 5 percent interest. This year, the revenue from the new business was $50,000, and the explicit costs were $10,000. The accounting profit earned by Ernie was

Which of the following statements is correct? stockholders should generally be happier than bondholders to have managers invest in risky projects with high potential returns as opposed to safe projects with lower expected returns. potential conflicts between stockholders and bondholders are increased if a firm's bonds are convertible into its common stock. takeovers are most likely to be attempted if the target firm’s stock price is above its intrinsic value. 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.