Which of the Following Is a Reason Why Equity Capital

question 172

Multiple Choice

Which of the following is a reason why equity capital is considered riskier than debt capital?

• A) Equity capital has a higher priority claim against assets and earnings.
• B) Equity capital requires regular periodic payments in the form of dividends.
• C) Equity capital expects dividend payments which are not tax-deductible.
• D) Equity capital remains invested in a firm indefinitely.

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Definitions:

Cash Inflows

Cash inflows refer to the money entering a business from various sources such as sales, financing, or investment returns, crucial for operational funding and growth.

Cash Inflows

Money or money's worth received by a business during a period, arising from various sources such as operations, financing, and investing activities.

Discount Rate

The interest rate that is employed to figure out the present value of future cash flows during discounted cash flow analysis.

Required Rate

The minimum return an investor expects to achieve when investing in a particular asset, taking into account its risk level.