Buffers,Inc

question 65

Multiple Choice

Buffers,Inc.,uses cash when buying and selling all of its investment assets.Consider the following statements: i.When investment asset accounts increase,net cash inflows have occurred.
Ii) When investment asset accounts increase,net cash outflows have occurred.
Iii) When the investment asset accounts decreased,net cash inflows have occurred.
Iv) When the investment asset accounts decrease,net cash outflows have occurred.
Which of the following combination is true?

• A)i and iii
• B)ii and iv
• C)i and iv
• D)ii and iii

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Definitions:

Debt/Equity Ratio

A ratio exemplifying the balance of equity to debt in the financing structure for a company’s assets.

Interest Tax Shield

A deduction allowed for the interest paid on debt, thereby reducing taxable income and the total tax owed.

M&M Proposition I

outlines that in a perfect market, without taxes and transaction costs, a company's value is unaffected by its capital structure.

Direct Bankruptcy Costs

The expenses incurred by a company when going through the process of declaring bankruptcy, including legal fees, accounting fees, trustee fees, and other associated administrative expenses.