The Law of Conservation of Value Implies That

question 44

Multiple Choice

The law of conservation of value implies that
I.the mix of senior and subordinated debt does not affect the value of the firm;
II.the mix of convertible and nonconvertible debt does not affect the value of the firm;
III.the mix of common stock and preferred stock does not affect the value of the firm

• A)I only
• B)II only
• C)III only
• D)I, II, and III

---

Definitions:

Net Income

The total earnings of a company after subtracting all expenses, taxes, and costs from the total revenue.

Initial Value Method

An accounting approach where investments are recorded at their initial purchase cost without subsequent adjustment for changes in market value.

Consolidation Worksheet

A tool used in the preparation of consolidated financial statements that helps in combining the financial information of parent and subsidiary entities.

Treasury Stock

Shares that were issued and later reacquired by the issuing company, reducing the amount of outstanding stock on the open market.