Question: Bali Corp has 10 000 surplus funds to invest and is

Bali Corp. has $10,000 surplus funds to invest and is considering investing in either Company A or Company B. Company A promises to return the $10,000 original amount invested in three years' time and pay a 2% annual return on the principal amount. Company B does not promise to repay the original amount invested, hut indicates that it is likely that the $10,000 investment will be worth more than $10,000 if Company B is profitable. Whether Bali will receive an annual return on the investment depends on Company B's cash flows and whether Company B's hoard of directors votes to distribute the cash. (a) Identify whether the potential investments are investments in debt or in equity securities and (h) explain how you determined your answer.

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  • CreatedSeptember 18, 2015
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