The Management Team of SoftWare Dreamworks Ltd

question 33

Multiple Choice

The management team of SoftWare Dreamworks Ltd. owns 35% of the outstanding shares of the company. the remainder are widely held by North American investors, with no on else owning more than 2% of the shares. However management is concerned about retaining control because there has been much takeover activity in the software industry recently. The firm's debt-Equity ratio sits at 60%. The current dividend payout ratio is 5%. How should management plan to obtain new funds for expansion into 4D research and development?

• A) Issue new common shares.
• B) Sell new bonds.
• C) Issue new preferred shares.
• D) Borrow long term from a bank.
• E) Keep a high profit retention policy.

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Definitions:

Total Variable Cost

The total expenses that change in proportion to the production output or sales volume of a company.

Total Product

The overall quantity of output or goods produced by a firm or economy over a specific time period.

Total Fixed Cost

The overall amount of costs that are unaffected by production volume or output.