Issue Costs for Equity Are Higher Than Those for Debt

question 90

Multiple Choice

Issue costs for equity are higher than those for debt for all of the following reasons except:

• A)Equity issues have higher administrative costs
• B)Underwriting stock is riskier than underwriting bonds
• C)Equity issues involve significantly more time to sell
• D)Equity issues have lower economies of scale

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Definitions:

Equity Method

An accounting technique used to record investments in associated companies.

Fixed Assets

Long-term tangible assets used in a company's operations, such as buildings, machinery, and equipment, which are not typically sold in the course of business.

Income Statement

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

Balance Sheet

A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.