In Considering Whether a Company Should Invest in Debt or Equity

question 118

Multiple Choice

In considering whether a company should invest in debt or equity securities of another company,which of the following statements is incorrect?

• A) The company wants to make the best use of its excess cash to generate investment income.
• B) Investment income consists of interest earned from equity securities and dividends earned from debt investments.
• C) Investment income includes increases in the market value of debt or equity securities.
• D) The excess cash that can be invested could be the result of temporary or seasonal business fluctuations.

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Definitions:

Profit Margin

The financial metric that calculates the percentage of revenue that exceeds the costs of producing that revenue, indicating the profitability.

Investment

The assignment of capital with the intention of creating earnings or profit.

F-distribution

A probability distribution used in analysis of variance (ANOVA), for comparing the variances of different populations.

Degrees Of Freedom

The number of independent values or quantities that can vary in the calculation of a statistic, crucial for assessing the statistic's reliability.