Company a Issues Preference Shares to Company B, the Terms

question 4

Multiple Choice

Company A issues preference shares to Company B, the terms of which entitle party B to redeem the preference shares for cash if Company A's revenues fall below a specified level. From Company A's perspective the preference shares are:

• A) an equity instrument
• B) a financial liability
• C) a compound financial instrument
• D) a financial asset

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Definitions:

R&D Financing

The allocation of financial resources towards research and development activities within a company or institution, aiming to innovate or improve products or technologies.

R&D Expenditure

Financial resources allocated by businesses, governments, or other entities to research and development activities aimed at innovation and improvements.

Future Profits

Expected earnings of a company or project in upcoming periods, often used in valuation and investment decision making.

Worthwhile Project

A project that is considered to be of enough benefit or value to justify the resources or effort spent on it.