Bigbux and Lottadoe Are Two Very Similar Businesses in All

question 41

True/False

Bigbux and Lottadoe are two very similar businesses in all respects except that Bigbux relies mainly on equity financing, while Lottadoe relies heavily on debt financing. This year both firms have enjoyed strong growth in net income. This is likely to result in a higher return on equity for Bigbux than for Lottadoe.

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Definitions:

Par Preferred Stock

A type of preferred stock with a nominal face value, which determines dividend payments and is prioritized over common stock in the event of liquidation.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company’s profits through dividends.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting liabilities, representing ownership interest.

Par Value Common Stock

The nominal or face value assigned to shares of common stock in the corporate charter, which has little relation to the market value of the shares.