Which of the follwong is a true statement about Risk Capital or Owner's Equity? There is no legal obligtion to pay it back It is usually the largest asset held by a firm O If dividands are not paid in a consistant and timely fashion the shareholders can force the firm into bankrupcy, O It is a much riskier means of financing an embrionic organization than debt. All of the above are correct statements

Which of the follwong is a true statement about Risk Capital or Owner's Equity? There is no legal obligtion to pay it back It is usually the largest asset held by a firm O If dividands are not paid in a consistant and timely fashion the shareholders can force the firm into bankrupcy, O It is a much riskier means of financing an embrionic organization than debt. All of the above are correct statements

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash, Marketable Securities, And Complex Financial Instruments

Section: Chapter Questions

Problem 40CYBK

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Which of the following statements is FALSE? A. Equity cost of capital is normally higher then cost of debt, thus cost of debt can be examined in isolation. B. No matter if a firm is unlevered or levered, there is no difference in the market value of the firms total securities and market value of the firm’s assets. C. Introducing debt increases the risk even though it may be cheap and consequently increases firms equity cost of capital. D. Cost of Capital of equity and Leverage can be explicitly explained by first proposition that Modigliani and Miller introduced.
Which of the following statements is false? The cost of debt securities is highest due to their relatively low risk The cost of common stock is highest due to its relatively high risk The cost of preferred stock falls somewhere between debt and common stock None of the above Capital budgeting is the decision making process used in the acquisition of long term physical assets True False Which of the following statements are true regarding the payback period of an investment? It does not account for the time value of money No objective criteria exists for what is an acceptable payback period Cash flows occurring after the payback period have no impact on the payback computation All of the above The method that measures a projects return based on present values is the: Internal Rate of Return Discounted Payback Period Modified Internal Rate of Return None of the Above
Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy and agency costs is reduced. Debt is often the least costly form of financing for a firm. Firms should probably use some debt in their capital structure. Different firms are subject to different levels of risk.
What are the TWO primary advantages of using CAPM over DDM? It adjusts for risks It does not explicitly consider risk Applicable to companies that pay steady dividends Applicable to companies that pay no dividends
Companies obtain their funds from two sources: debt and equity. The providers of these funds are protected in different ways. Debtholders have specific contracts with the company, and if the company defaults they have recourse ahead of shareholders.Shareholders are the bearers of residual risk and in return for the uncertainty this creates, equity finance is more expensive than debtfinance- reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.Question:If the shareholders’ position is not protected by a contract-unlike the provider of debt- how is it in fact made viable? Discuss.
Floatation or issuance cost of new securities are present in an imperfect economy. True False Holders of debt instruments issued by the company has a priority over equity holders when it comes to voting of pertinent company decisions. True False The factor that the risk of obsolescence is borne by the lessor is one of the benefits that attracts companies to substitute leasing assets on the decision of acquiring capital assets through incurring liabilities. True False
Which of the following statements is false? A. Internal controls are the processes by which the firm ensures that it presents accurate financial statements. B. Greenfield investments provide uncertain cash flows with high yields and high growth potential. C. Footnotes allow investors or any users to improve their assessments of the amount, timing, and uncertainty of the estimates reported in financial statements. D. Secondary markets are the markets in which existing, already outstanding securities are traded among investors.
Which of the following statements is false? A. Mutual funds are pool investor funds to purchase financial instruments and thus reduce risks through diversification. B. Initial public offering (IPO) occurs when firm issues stock in the public market for the first time. C. The difference between current assets and non-current assets equals to working capital. D. Owner’s equity is the residual interest in assets that remains after subtracting an entity’s liabilities.
A common feature of an LBO structure is a. the minimal use of debt financing. b. a cash sweep, which is a covenant requiring all excess cash be used to retire debt.c. projected rates of return that explicitly and precisely account for the risks associated with these investments.d. its limited use in only providing seed capital to start-up firms.e. none of the above.
Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity. For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets. A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.
Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.
The negative working capital occurs when the اخترأحد الخيارات a. None of the options b. Current equity exceed current assets c. Current assets exceed current equity d. Current liabilities exceed current assets e. Current assets exceed current liabilities Which of the following statement is correct? اخترأحد الخيارات a. Capital structure of a company may comprise of Equity Share Capital, Preference Share Capital and Debentures b. Working capital refers to the mix of different sources of long-term funds c. None of the statement is correct d. Capital expenditure decisions do not involve commitment of large sums of money e. Capital structure is a method of analyzing and comparing substantial future investments and expenditures to determine