Which of the Following Companies Is Undercapitalized

question 54

Multiple Choice

Which of the following companies is undercapitalized?

• A) A large corporation that has been hit with a major lawsuit because one of its products has a design flaw that has led to serious injuries.
• B) A new company struggling because it has insufficient start-up funds.
• C) A medium-sized company that has decided to buy out a smaller competitor.
• D) An electric utility that has recently experienced a significant increase in the cost of coal and labor.

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Definitions:

Issuing Corporation

A legal entity that generates and offers securities like stocks or bonds to the public to raise capital.

Sinking Fund

A fund established by a company to set aside revenue over time for the purpose of paying off debt, replacing assets, or cover future expenses.

Bond Issue

The process by which a government or corporation raises funds by selling bonds to investors.

Periodic Payments

Payments made or received regularly over a set period of time, often in context with loans or annuities.