Which of the Following Is Usually Cited as a Disadvantage

question 26

Multiple Choice

Which of the following is usually cited as a disadvantage of issuing new ordinary shares as a method of financing?

• A) Ordinary shares do not have a maturity date, thus it is an open-end commitment of the firm's earnings.
• B) Since sale of ordinary shares increases the number of owners and the amount of capital at risk, the firm's bond rating is usually negatively affected and its cost of debt rises.
• C) If the firm currently has more equity than its optimal capital structure dictates and it issues more equity, then the average cost of capital will most likely rise.
• D) Ordinary shares are not an attractive option if the firm seeks to increase its reserve borrowing capacity.

Understand the impact of different compounding frequencies on investment growth and loan repayment schedules.

Calculate the payment size for loans and mortgages based on various interest rates and repayment periods.

Apply the concept of the time value of money to real-life financial planning and decision making.

Determine the duration of payments or withdrawals for investments and loans based on compound interest calculations.

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Definitions:

Empirical

Pertains to, deals with, or is confirmable by direct observation or firsthand experience rather than speculative reasoning or theoretical constructs.

Empirical

Relates to, focused on, or can be confirmed through the process of watching or undergoing an experience, rather than being derived from theoretical or abstract reasoning.

Sociohistorical Context

The social and historical background that shapes cultures, societies, and individual behaviors and attitudes.

Theoretically Diverse

Referring to an approach or perspective that integrates and acknowledges a variety of theoretical frameworks or explanations.