Which of the Following Represent Limitations of Indifference Analysis

question 43

Multiple Choice

Which of the following represent limitations of indifference analysis?
I.Indifference analysis does not consider how equity investors may react to the increased risk due to increased leverage.
II.Indifference analysis fails to account for corporate taxes.
III.Indifference analysis ignores sinking fund payments.

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

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Definitions:

Short-Term Debt

Liabilities or loan obligations that are due to be paid within a year.

Average Collection Period

The average number of days it takes for a company to receive payments owed by its customers for goods or services sold on credit.

Credit Sales

Credit sales are transactions where the buyer is allowed to pay for goods or services at a later date, extending credit.

Accounts Receivable

Money owed to a business by its customers for goods or services delivered on credit.