Q1. Compute the values for (B) and (Y) in the above chart. Compute the Debt Ratio and
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Q2. For each item circle the correct response when comparing the issuance of debt and equity.
a. The corporation (_________ / does not) have to pay interest to creditors, but (does / does not) have to pay dividends to shareholders.
b. The corporation (_________ / never has to) repay amounts borrowed from creditors, but (must / _________) repay amounts invested by shareholders, thus the title, “contributed” capital.
c. The interest expense of debt (_________ / does not reduce) taxable income, but dividends paid to shareholders (reduce / _________) taxable income.
d. Issuing additional debt (does / _________) dilute current shareholders’ ownership, but issuing additional shares of common stock (_________ / does not) dilute current shareholders’ ownership.
e. If you were the CFO of a company, how would you recommend financing assets? Primarily with (_________ / _________). Why?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For
Interpreting and Analyzing Financial Statements
ISBN: 978-0132746243
6th edition
Authors: Karen P. Schoenebeck, Mark P. Holtzman
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