If the Beta Company Issues $100 Million Worth of Preferred

question 111

Multiple Choice

If the Beta company issues $100 million worth of preferred stock, what will happen to its net worth if book value of common equity is $500 million?

• A)it will increase by $400 million.
• B)it will decrease by $100 million.
• C)it will increase to $600 million.
• D)it will decrease to $400 million.

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Definitions:

Service Revenue

Income earned from providing services as opposed to selling goods.

Income Statement

A financial statement that shows a company's revenues, expenses, and net income over a specific period of time.

Cash Collected

The total amount of money received by a company during a specific period.

Expense Recognition Principle

An accounting principle that expenses should be recognized and recorded when they are incurred, not necessarily when they are paid.