Which of the Following Statements Is Correct

question 12

Multiple Choice

Which of the following statements is correct?

• A) Once a firm declares bankruptcy,it is liquidated by the trustee,who uses the proceeds to pay bondholders,unpaid wages,taxes,and lawyer fees.
• B) A firm with a sinking fund payment coming due would generally choose to buy back bonds in the open market,if the price of the bond exceeds the sinking fund call price.
• C) Income bonds pay interest only when the amount of the interest is actually earned by the company.Thus,these securities cannot bankrupt a company and this makes them riskier to investors than regular bonds.
• D) One disadvantage of zero-coupon bonds is that issuing firms cannot realize the tax savings from issuing debt until the bonds mature.
• E) Other things held constant,callable bonds should have a lower yield to maturity than noncallable bonds.

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Definitions:

Variable Overhead

Variable overhead refers to costs that change in proportion to the production activity or business operations levels, such as utilities or materials.

Direct Materials

Ingredients that are identifiable in the production process of a product and serve as fundamental elements of the end product.

Direct Labor-Hours

The overall hours dedicated by workers who are directly contributing to the production line.

Variable Overhead

Costs that vary with the level of production output, such as utilities for manufacturing equipment, which are not fixed.