When a Company Whose Ability to Repay Its Obligations in Full

question 95

Multiple Choice

When a company whose ability to repay its obligations in full is uncertain

• A) it will have to issue debt with longer maturities than would a company with a lower probability of default.
• B) its bonds will sell for higher prices than would the bonds of a company with a lower probability of default.
• C) it must offer investors higher yields to compensate them for the risk they take in buying their bonds or making loans.
• D) it must do so through financial markets rather than through financial intermediaries.

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Definitions:

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, measuring them in terms of the amount of finished goods they represent.

Process Costing

An accounting methodology used to allocate costs to products in industries where the production process is continuous and units are indistinguishable from one another.

Cost Of Goods

The total cost incurred to acquire or manufacture the products sold during a specific period.

Conversion Costs

The sum of direct labor costs and manufacturing overhead costs, incurred to convert raw materials into finished products.