Which One of These Should Be the Primary Appeal of Unused

question 4

Multiple Choice

Which one of these should be the primary appeal of unused debt capacity to a bidder firm?

• A)Ability to borrow additional funds to increase management bonuses
• B)Source of funding for negative net present value projects
• C)Increased funding for the payment of unsustainable dividends
• D)Tax savings resulting from increased interest expense on additional debt
• E)Debt funding for a golden parachute

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Definitions:

Firm Commitment

In finance, an underwriter's promise to purchase all the unsold shares of an issue, thereby guaranteeing the amount of capital that the issuer will raise.

Standby Underwriting

A commitment by an underwriter to purchase any unsold shares during an offering, ensuring that the issuing company raises the full amount of capital.

Best Efforts

A contractual clause requiring one party to exert all reasonable attempts to fulfill the terms of the agreement.

Preemptive Rights

The rights that allow existing shareholders to purchase new shares in a company before the company offers them to the public, to maintain their proportionate ownership.