Which of the Following Statements Is True

question 44

Multiple Choice

Which of the following statements is true?

• A) In recent years external equity has been a large percentage of total sources of financing even though this is, by far, the most expensive source of financing.
• B) In recent years external equity has been a large percentage of total sources of financing. Some argue that this relationship exists because financial managers think stock prices are too high.
• C) In recent years external equity has been a small percentage of total sources of financing even though this is, by far, the cheapest source of financing.
• D) In recent years external equity has been a small percentage of total sources of financing. Some argue that this relationship exists because financial managers think stock prices are too low, even though this is inconsistent with efficient markets.
• E) In recent years external equity has been a small percentage of total sources of financing in part because of the legal reserves that the firms must hold against equity.

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Definitions:

Price-earnings Ratio

The Price-earnings Ratio is a measure of a company's current share price relative to its per-share earnings, used to evaluate its valuation.

Market Price Per Share

The current value at which an individual share of a company can be bought or sold in the market.

Contra Asset Accounts

Accounts on a balance sheet that have a credit balance and are used to offset the debit balances in related asset accounts, such as accumulated depreciation.

Total Amount

The cumulative sum or aggregate of all quantities or figures considered, often referring to the final sum of a series of transactions or the overall value of financial accounts.