Debt Capacity Is Given as a Reason When the Value

question 4

Multiple Choice

Debt capacity is given as a reason when the value of the equity falls when equity is issued.The reason for this is:

• A)the high issue costs of a debt offering must be paid by the shareholders.
• B)the priority position of the equity is lowered.
• C)management has information that the probability of default has risen,limiting the debt capacity causing the firm to raise equity capital.
• D)All of the above.
• E)None of the above

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Definitions:

Financing Activities

Activities that result in changes in the size and composition of the equity capital or borrowings of an entity.

Declaration

An official statement, announcement, or acknowledgment made by an authority.

Comparative Statement

A financial analysis tool that compares two or more financial statements to identify trends or changes over a period.

Financial Position

A snapshot of the assets, liabilities, and equity of a company at a specific point in time.