From an Individual's Perspective, Which of the Following Is Not

question 33

Multiple Choice

From an individual's perspective, which of the following is not an advantage of utilizing debt when determining whether debt (i.e., long-term securities) or stock should be used as part of the capital structure of the business?

• A)It is less costly to pay a return to the investor.
• B)It can be transferred without concern for control.
• C)It provides a defense against possible imposition of the accumulated earnings tax.
• D)It receives more favorable treatment should it become worthless.

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Definitions:

Cost of Capital

The minimum return on investment a business necessitates to uphold its market value and entice financial inflow.

Certainty Equivalent NPV

A method used to adjust the net present value (NPV) of an investment to account for risk, equating it to a certain but lower cash flow.

Cost of Capital

The investment return rate a corporation requires to sustain its market valuation and pull in investment.

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield on government securities.