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.

---

Definitions:

CCA

Capital Cost Allowance; a tax deduction in Canada for the depreciation of tangible property.

Earnings Before Interest And Taxes

A measure of a firm's profit that includes all income and expenses except interest and income tax expenses.

Retained Earnings

The portion of a company's profits that is kept or retained rather than distributed to shareholders or owners as dividends.

Net New Equity

The amount of equity capital a company raises through the issuance of new shares minus any shares it has bought back, reflecting the net increase in share capital.