The Financial Manager of a Well-Regarded Book Publishing Firm Wishes

question 3

Multiple Choice

The financial manager of a well-regarded book publishing firm wishes to buy a small Internet publishing company to provide an avenue for sale of its materials online. In order to raise the funds to make this purchase, the financial manager decides to sell more stock in the company. How is the financial manager raising funds in this case?

• A) by increasing the debt burden carried by the company
• B) by raising the company's equity by encouraging new owners to take a stake in the company
• C) by decreasing the ratio of equity to debt held by the company
• D) by increasing the value of shares held by the existing owners of the company

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Definitions:

Profitability Index

The Profitability Index is a financial metric that compares the present value of future cash flows generated by a project to the initial investment, used to assess the attractiveness of an investment.

Average Accounting Return

A method of measuring an investment's profitability by comparing its average net income to its average book value.

Return on Assets

A profitability ratio that measures how efficiently a company is using its assets to generate profit, calculated by dividing net income by total assets.

Shareholder Wealth

The total value of an investment in a company's stock, encompassing capital gains and dividends received over time.