Everything Else Equal, If a Firm with Favorable Future Prospects

question 28

Multiple Choice

Everything else equal, if a firm with favorable future prospects raises funds by issuing new shares of common stock, _____. 

• A)its debt/assets ratio should increase
• B)its marginal bankruptcy-related costs should increase
• C)its retained earnings will increase immediately
• D)its taxable income should decrease
• E)the price of its stock will increase when future profits are realized by the firm

---

Definitions:

Tax

Compulsory financial charges or other types of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Producer Surplus

The differentiation between the accepted selling price by producers for a product or service and the final earning.

Consumer Surplus

The gap between what consumers are ready and financially able to spend on a good or service and what they actually spend.

Tax

An obligatory fee or some other type of financial imposition placed on a taxpayer by a government organization, designed to cover the cost of government activities and diverse expenditures in public services.