A Small Business Owner Should Avoid Borrowing Money When He/she

question 133

True/False

A small business owner should avoid borrowing money when he/she sees a downturn in business or to refinance existing debt.

Understand how changes in the risk-free rate affect the Security Market Line (SML).

Grasp the concept of expected returns and their relation to investment risk.

Know the differences between equity and debt in terms of risk.

Understand the role of diversification in managing investment risk.

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Definitions:

Investing Section

A part of the statement of cash flows that reports the purchase and sale of long-term investments and property, plant, and equipment, reflecting how the company invests its cash.

Financing Section

Part of the cash flow statement that records cash activities related to funding the company, such as obtaining loans or issuing stock.

Statement of Cash Flows

A financial statement summarizing the total cash earnings from a company's operational activities and investments, alongside the expenses and investments paid out over a specific time frame.

Accounting Equation

A fundamental principle of accounting stating that assets equal liabilities plus owners' equity (Assets = Liabilities + Equity).