A Business Can Obtain Financing by Issuing Stock or Borrowing

question 157

Multiple Choice

A business can obtain financing by issuing stock or borrowing from third parties,such as banks.What are the balance sheet effects of issuing stock to obtain cash?

• A)No effect on assets;Decrease liabilities;Increase stockholders' equity
• B)Increase assets;Increase liabilities;Increase stockholders' equity
• C)Increase assets;No effect on liabilities;Increase stockholders' equity
• D)Increase assets;Increase liabilities;No effect on stockholders' equity

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Definitions:

Expected Return

The average of all possible returns from an investment, weighted by their probabilities.

Market

A venue where goods, services, or financial instruments are exchanged between buyers and sellers, either physically or electronically.

Beta

An indicator of a stock's fluctuation compared to the general market, where a beta above 1 signals increased volatility.

Risk-Free Rate

An estimated profit from a risk-free investment, commonly illustrated by government security yields.