Stockholders Are Residual Claimants,meaning That They

question 65

Multiple Choice

Stockholders are residual claimants,meaning that they

• A)have the first priority claim on all of a company's assets.
• B)are liable for all of a company's debts.
• C)will never share in a company's profits.
• D)receive the remaining cash flow after all other claims are paid.

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Definitions:

Equity

The value of an asset after deducting the value of liabilities, representing ownership interest in a company or property.

Cost of Capital

The rate of return that a company must earn on its project investments to maintain its market value and attract funds.

Debt/Equity Ratio

A fiscal ratio that reflects the comparative amount of equity from shareholders and borrowed funds utilized to support a company's resources.

DFL

Degree of Financial Leverage, a ratio that measures the sensitivity of a company’s earnings per share to fluctuations in its operating income, based on its capital structure.