The Primary Disadvantage of Equity Capital Is That the Entrepreneur

question 64

Multiple Choice

The primary disadvantage of equity capital is that the entrepreneur ________.

• A)must repay it at some point with interest
• B)must give up some (perhaps most)of the ownership in the business to outsiders
• C)experiences the disadvantage of the risk/return tradeoff in the form of higher interest rates
• D)B and C above

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Definitions:

Process Costing

An accounting method used to allocate costs to units of product in industries where production is continuous and units are indistinguishable, such as in chemicals or food production.

Weighted-Average Method

A cost accounting method that calculates the cost per unit by combining the costs of two or more similar items in the inventory, and dividing the total cost by the total number of units.

Equivalent Unit

A concept used in cost accounting to express the amount of work done on inventory in terms of fully completed units.

Process Costing

An accounting methodology used in industries where production is continuous and costs can be assigned to specific processes or departments in the production cycle.