One can obtain a clear picture of a company's liquidity
by referring to its
A. Balance Sheet.
B. Income Statement Correct Answer: A. Balance Sheet
(liquidity refers to assets / cash, while income statement only de
...
One can obtain a clear picture of a company's liquidity
by referring to its
A. Balance Sheet.
B. Income Statement Correct Answer: A. Balance Sheet
(liquidity refers to assets / cash, while income statement only deals with revenues, expenses, and profits)
The advantages of obtaining funds by issuing debt,
rather than issuing additional common stock, include
which of the following?
A. Funds are obtained without surrendering
ownership control.
B. Funds are obtained without surrendering
ownership control, as well as, interest expense
is tax‐deductible.
C. The company's default risk decreases.
D. Interest expense is tax‐deductible. Correct Answer: B. Funds are obtained without surrendering ownership control, as well as, interest expense is tax-deductible.
(but mostly the fact that it is done without surrendering ownership of the company)
Banks will charge a very profitable company a higher
interest rate as compared to a company with minimal
income since the high‐income business will be better
able to pay the extra interest cost.
A. True
B. False Correct Answer: B. Absorutery not
Banks do the opposite; they charge lower interest rates to profitable companies to attract their business because there is less risk involved with profitable companies.
The lower the debt to equity ratio, the greater the
financial risk the company is taking.
A. True
B. False Correct Answer: B. Nuh uh
This makes sense because a LOWER debt to equity ratio means (debt/equity) is small which means debt is small compared to
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