Borrowing Money Rather Than Issuing Common Stock Increases the Potential

question 67

True/False

Borrowing money rather than issuing common stock increases the potential for higher rates of return to owners.

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Definitions:

Net Income

The total profit of a company after all expenses, taxes, and costs have been deducted from total revenue.

External Financing Needed

The additional funds a company requires from external sources to finance its planned activities or growth when internal cash flows are insufficient.

Profit Margin

A measure of profitability calculated as net income divided by revenues, expressed as a percentage.

Capital Intensity Ratio

A metric that measures the amount of assets required to generate one dollar of revenue; the higher the ratio, the more capital-intensive the business.