Debt Capacity Is Often Given as a Reason for the Value

question 28

Multiple Choice

Debt capacity is often given as a reason for the value of the stock falling 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 and causing the firm to raise equity capital.
• D)All of the above.
• E)None of the above

---

Definitions:

Work In Process Account

An account used to track the costs associated with goods that are partially completed in the manufacturing process.

Manufacturing Costs

Expenses related to the production of goods, including labor, materials, and overhead costs.

Completed Jobs

The number of tasks, projects, or orders that have been finished within a specified period.

Incomplete Jobs

Tasks or projects that have been started but not yet finished, often requiring further inputs of resources or time to complete.