One Implication of Information Asymmetry Between Investors and Firm Managers

question 88

True/False

One implication of information asymmetry between investors and firm managers is that if a firm raises new capital by issuing debt rather than by selling stock,it signals that the firm has very good prospects.

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Definitions:

Book Value

The value of an asset as recorded on the balance sheet, calculated as the cost of an asset minus accumulated depreciation.

Fair Value

The estimated price at which an asset would change hands between a willing buyer and seller, not under compulsion and with reasonable knowledge of the relevant facts.

Mortgage

A loan secured by real property, typically used to purchase that property.

Book Value

The value of an asset according to its balance sheet account balance, taking into account the cost of the asset minus accumulated depreciation.