Which of the Following Represent Limitations of Indifference Analysis

question 43

Multiple Choice

Which of the following represent limitations of indifference analysis?
I.Indifference analysis does not consider how equity investors may react to the increased risk due to increased leverage.
II.Indifference analysis fails to account for corporate taxes.
III.Indifference analysis ignores sinking fund payments.

• A)I only
• B)I and II
• C)I and III
• D)I, II, and III

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Definitions:

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.

Cash Dividends

Payments made out of a corporation's earnings to its shareholders, typically in the form of cash.

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments not considered cash equivalents.

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. It's an important measure of financial health.