The Disadvantages of Selling Stock to Obtain Long-Term Financing Include

question 345

Multiple Choice

The disadvantages of selling stock to obtain long-term financing include:

• A) the legal obligation to pay dividends if the company is profitable.
• B) the funds contributed by stockholders must be repaid from after-tax profits.
• C) a reduction in the market value of the firm's products.
• D) a possible change in management and policies in the company.

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Definitions:

FIFO Method

An inventory valuation method that assumes the first items placed in inventory are the first sold.

Conversion Costs

The costs incurred in the process of converting raw materials into finished goods, including direct labor and manufacturing overhead expenses.

FIFO Method

A method of inventory valuation where the first items purchased or produced are the first ones sold, used in costing inventory.

Conversion Costs

The combined expenses of direct labor and manufacturing overheads incurred in transforming raw materials into finished goods.