Flotation Costs

question 170

Multiple Choice

Flotation costs:

• A) Are an argument for a high dividend policy?
• B) Increase the effectiveness of homemade dividends.
• C) Cause the value of stock to decline when new shares are issued.
• D) Tend to increase the growth rate of a firm.
• E) Decrease the costs associated with homemade dividends.

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Definitions:

Personal Guaranty

A legal commitment by an individual to repay a loan or debt in the event that the primary borrower defaults.

Main Purpose Rule

A legal principle that exempts a guarantor from the requirement of a written contract if the primary intent of the guarantee is to serve the guarantor's own interests.

Debtor

An individual or entity that owes money to another party.

Foreclosure Proceeding

A legal process by which a lender seeks to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the asset used as the collateral for the loan.