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Principle of Finance Milestone 3Â Sophia Course Answer
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1
You invest $1,000 in a stock that has a 15% chance of a 1% return, a 60% chance of a 5% return and a 25% chance of a 7% return.
Â
What is your expected return after one year?
·
4.3%
·
4.9%
·
4.5%
·
5.3%
CONCEPT
Expected Return
2
Which of the following credit ratings would make a country or company have the easiest time raising capital?
·
CC
·
A
·
BBB
·
AAA
CONCEPT
The Impact of News of Expected Returns
3
A security that falls above the security market line has __________.
·
a low expected return and a low price
·
a high expected return and a high price
·
a high expected return and a low price
·
a low expected return and a high price
CONCEPT
Understanding the Security Market Line
4
Using the following variables, calculate an organization's cost of debt on a $500,000 bond.
·Rf: 1%
·credit-risk rate: 5%
·t: 15%
·
$4,500
·
$30,000
·
$29,550
·
$25,500
CONCEPT
Valuing Different Costs
5
Anais purchased stock with an initial share price of $52, and sold it when the share price was $60. While she owned the stock, she earned $7 in dividends.
Â
What was her total percentage return on the investment?
·
13.33%
·
25.00%
·
19.83%
·
28.85%
CONCEPT
Understanding Returns
6
The risk that your investment will lose value because your return is dependant on the stability of a secondary investment is known as __________.
·
liquidity risk
·
asset-backed risk
·
model risk
·
prepayment risk
CONCEPT
Risk
7
The discounted cash flow approach is useful for __________.
·
graphing an asset's position on the security market line
·
determining the value of a company’s publicly traded equity
·
evaluating whether an asset is over-valued, under-valued or correctly priced
·
determining the value of future profits (or losses) in today’s terms
CONCEPT
Approaches to Calculating the Cost of Capital
8
You own a small manufacturing business that produces widgets. You have spent $150,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $2 to make and they sell for $15 each, so your variable cost is 13.3% of the overall revenue.
Â
At your current level of operating leverage, how many widgets must you sell to break even?
·
11,539
·
10,000
·
19,950
·
13,482
CONCEPT
Thinking About Operating Leverage
9
Which of the following is true of systematic risk?
·
It cannot be diversified away by holding a pool of individual assets.
·
It is less tightly linked to the market as a whole than unsystematic risk.
·
It does not require additional compensation in terms of expected return.
·
An investor can avoid this type of risk through calculated investment choices.
CONCEPT
Diversification
10
Calculate a company's total leverage given the following information:
·Change in sales = 7%
·Change in earnings = 10%
·
0.7
·
Cannot calculate without net income data
·
Cannot calculate without EBIT data
·
1.43
CONCEPT
Thinking About Financial Leverage
11
Which of the following portfolios theoretically diversifies away the most risk?
·
One whose investments are highly correlated
·
One whose investments have a negative covariance
·
One whose investments have a large covariance
·
One whose investments have zero correlation
CONCEPT
Implications Across Portfolios
12
Before selling bonds to investors, Matteo's company must provide audited financial statements and a detailed description of the terms of the bonds.
Â
By doing so, which federal regulation is he complying with?
·
Securities Act of 1933
·
Securities Act Amendments of 1975
·
Securities Exchange Act of 1934
·
Sarbanes-Oxley Act of 2002
CONCEPT
Market Regulation
13
Which of the following is true of portfolio diversification?
·
A diversified portfolio containing negatively correlated investments has a lower variance than a portfolio containing a single asset type.
·
A diversified portfolio containing positively correlated investments has a lower variance than a portfolio containing a single asset type.
·
A diversified portfolio containing positively correlated investments has a higher variance than a portfolio containing a single asset type.
·
A diversified portfolio containing negatively correlated investments has a higher variance than a portfolio containing a single asset type.
CONCEPT
Portfolio Considerations
14
One reason a company may choose to issue additional debt instead of equity when raising capital is that __________.
·
debt interest payments are tax-deductible
·
equity increases volatility
·
too much equity raises the risk of bankruptcy
·
the company will be less leveraged
15
What is the amount of money foregone by investing in one asset compared to another known as?
·
The overall cost of capital
·
The opportunity cost of capital
·
The required rate of return on capital
·
The weighted average cost of capital
CONCEPT
The Basics of the Cost of Capital
16
Company A Company B
Market Value of Equity $400,000 $600,000
Market Value of Debt $100,000 $800,000
Cost of Equity 9% 9%
Cost of Debt 3% 4%
Tax Rate 35% 35%
Â
Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6.5%?
·
Neither Company A nor Company B
·
Only Company A
·
Both Company A and Company B
·
Only Company B
CONCEPT
The WACC
17
Select the true statement about the bankruptcy process.
·
A Chapter 7 bankruptcy allows a company to restructure its debt.
·
A bankruptcy reorganization plan is voted on by a company's shareholders.
·
A company receives a stay from any collections activity after filing a bankruptcy petition.
·
Corporations file bankruptcy petitions with the states.
CONCEPT
Understanding the Bankruptcy Process
18
A social media start-up wants to raise funds to support growth by offering shares to a select group of investors.
Â
What type of market transaction should they pursue?
·
IPO
·
Secondary market offering
·
Share buyback
·
Private placement
CONCEPT
The Security Markets
19
Which of the following is a tenet of strong-form efficiency?
·
Future prices cannot be predicted based on past prices.
·
Some forms of technical analysis techniques can be useful for producing excess returns.
·
Share prices respond immediately to all information, whether public or private.
·
Investors can use the past prices of securities to predict their future prices.
CONCEPT
Market Efficiency
1
Marty receives a tip that the price of shares of an oil company are about to fall significantly. In order to avoid a huge loss, he goes into his online brokerage account and sells all of the stock that he owns in the oil company.
Â
What type of market transaction is taking place?
·
Secondary market offering
·
Share buyback
·
Primary market offering
·
Private placement
CONCEPT
The Security Markets
2
Using the following variables, calculate an organization's cost of common equity.
·Rf: 1.5%
·βs: 1.4
·(Rm – Rf): 8%
·
10.2%
·
12.7%
·
9.7%
·
11.6%
CONCEPT
Valuing Different Costs
3
You invest $3,000 in a stock that has a 10% chance of a 2% return, a 70% chance of a 6% return and a 20% chance of a 15% return.
Â
What is your expected return after one year?
·
7.4%
·
5.6%
·
6.0%
·
8.8%
CONCEPT
Expected Return
4
Before selling bonds to investors, Matteo's company must provide audited financial statements and a detailed description of the terms of the bonds.
Â
By doing so, which federal regulation is he complying with?
·
Securities Act Amendments of 1975
·
Securities Exchange Act of 1934
·
Securities Act of 1933
·
Sarbanes-Oxley Act of 2002
CONCEPT
Market Regulation
5
Why is an investment portfolio containing a mix of stocks and bonds less risky than one containing a single asset class?
·
Because bonds typically have a high variance and stocks typically have a low variance.
·
Because stocks and bonds are positively correlated.
·
Because stocks and bonds are negatively correlated.
·
Because the markets for stocks and bonds tend to move in the same direction at the same time.
CONCEPT
Portfolio Considerations
6
Calculate a company's total leverage given the following information:
·Net income = $80,000
·Revenue = $120,000
·Variable costs = $25,000
·
1.14
·
1.19
·
Cannot calculate without EPS data
·
Cannot calculate without knowing degree of financial leverage
CONCEPT
Thinking About Financial Leverage
7
Anais purchased stock with an initial share price of $52, and sold it when the share price was $60. While she owned the stock, she earned $7 in dividends.
Â
What was her total percentage return on the investment?
·
13.33%
·
19.83%
·
28.85%
·
25.00%
CONCEPT
Understanding Returns
8
Company A Company B
Market Value of Equity $400,000 $600,000
Market Value of Debt $100,000 $800,000
Cost of Equity 9% 9%
Cost of Debt 3% 4%
Tax Rate 35% 35%
Â
Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6.5%?
·
Both Company A and Company B
·
Neither Company A nor Company B
·
Only Company A
·
Only Company B
CONCEPT
The WACC
9
The capital asset pricing model is useful for __________.
·
assessing the ratio between risk and return on an investment
·
determining the discount rate on a company's long-term debt
·
projecting a company's future performance
·
valuing the net present value of a project
CONCEPT
Approaches to Calculating the Cost of Capital
10
You own a small manufacturing business that produces widgets. You have spent $100,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $4 to make and they sell for $22 each, so your variable cost is 18.2% of the overall revenue.
Â
At your current level of operating leverage, how many widgets must you sell to break even?
·
9,450
·
5,556
·
18,200
·
4,546
CONCEPT
Thinking About Operating Leverage
11
Which of the following is true of unsystematic risk?
·
The correlation among the returns of assets within a portfolio are irrelevant to this type of risk.
·
Its presence commands a return in excess of the risk-free rate.
·
It can be diversified away by relying on the lack of a tight positive relationship among the returns of a set of individual assets.
·
It is also known as non-diversifiable risk.
CONCEPT
Diversification
12
A company is considering a new plan for its capital structure.
Â
Which of the following is true if, under the new plan, the company's weighted average cost of capital exceeds the expected return?
·
The company's cost of capital is still at a comfortable level.
·
The company's proposed capital structure may put it at risk for bankruptcy.
·
The company is over-leveraged.
·
The company's value will increase.
13
Which of the following portfolios theoretically diversifies away the most risk?
·
One whose investments have zero correlation
·
One whose investments have a large covariance
·
One whose investments are highly correlated
·
One whose investments have a negative covariance
CONCEPT
Implications Across Portfolios
14
Select the true statement about the bankruptcy process.
·
A company receives a stay from any collections activity after filing a bankruptcy petition.
·
Corporations file bankruptcy petitions with the states.
·
A bankruptcy reorganization plan is voted on by a company's shareholders.
·
A Chapter 7 bankruptcy allows a company to restructure its debt.
CONCEPT
Understanding the Bankruptcy Process
15
The risk that your investment in a stock will lose value because the company's labor force goes on strike is known as __________.
·
market risk
·
asset-backed risk
·
default risk
·
operational risk
CONCEPT
Risk
16
What is the amount of money foregone by investing in one asset compared to another known as?
·
The weighted average cost of capital
·
The overall cost of capital
·
The opportunity cost of capital
·
The required rate of return on capital
CONCEPT
The Basics of the Cost of Capital
17
Which of the following credit ratings would make a country or company have the easiest time raising capital?
·
A
·
BBB
·
AAA
·
CC
CONCEPT
The Impact of News of Expected Returns
18
Which of the following is a tenet of semi-strong-form efficiency?
·
Share prices respond immediately to new information that is made public.
·
Individual investors can "beat" the market if enough information is made public.
·
Historical data can be used to generate excess returns in the present day.
·
Some forms of fundamental analysis can provide investors excess returns.
CONCEPT
Market Efficiency
19
A security that falls above the security market line is __________.
·
over-valued for its level of risk
·
attractive for a company raising capital
·
attractive for an investor
·
correctly valued for its level of risk
CONCEPT
Understanding the Security Market Line
1
You own a small manufacturing business that produces widgets. You have spent $100,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $4 to make and they sell for $22 each, so your variable cost is 18.2% of the overall revenue.
Â
At your current level of operating leverage, how many widgets must you sell to break even?
·
4,546
·
18,200
·
5,556
·
9,450
CONCEPT
Thinking About Operating Leverage
2
What is the benefit of choosing an exchange-traded fund over an individual stock?
·
An exchange-traded fund has a higher variance than an individual stock.
·
An exchange-traded fund is diversified and therefore carries less risk than an individual stock.
·
An exchange-traded fund will have a higher return than an individual stock.
·
An exchange-traded fund eliminates more systemic risk than an individual stock.
CONCEPT
Portfolio Considerations
3
The discounted cash flow approach is useful for __________.
·
determining the value of a company’s publicly traded equity
·
evaluating whether an asset is over-valued, under-valued or correctly priced
·
determining the value of future profits (or losses) in today’s terms
·
graphing an asset's position on the security market line
CONCEPT
Approaches to Calculating the Cost of Capital
4
A security that falls below the security market line has __________.
·
a high expected return and a low price
·
a high expected return and a high price
·
a low expected return and a high price
·
a low expected return and a low price
CONCEPT
Understanding the Security Market Line
5
The risk that your investment in a stock will lose value because the company's labor force goes on strike is known as __________.
·
asset-backed risk
·
default risk
·
market risk
·
operational risk
CONCEPT
Risk
6
Calculate a company's total leverage given the following information:
·Change in sales = 5.5%
·Change in earnings = 7%
·
0.79
·
Cannot calculate without ROE data
·
1.27
·
Cannot calculate without EBIT data
CONCEPT
Thinking About Financial Leverage
7
Which of the following credit ratings would make a country or company have the easiest time raising capital?
·
A
·
BBB
·
AAA
·
CC
CONCEPT
The Impact of News of Expected Returns
8
As a securities dealer, Patrick is able to easily know and compare the prices of stocks, which are now consolidated in a national market system.
Â
Which federal regulation established this process?
·
Securities Exchange Act of 1934
·
Securities Act of 1933
·
Sarbanes-Oxley Act of 2002
·
Securities Act Amendments of 1975
CONCEPT
Market Regulation
9
What is the amount of money foregone by investing in one asset compared to another known as?
·
The required rate of return on capital
·
The opportunity cost of capital
·
The overall cost of capital
·
The weighted average cost of capital
CONCEPT
The Basics of the Cost of Capital
10
You invest $3,000 in a stock that has a 10% chance of a 2% return, a 70% chance of a 6% return and a 20% chance of a 15% return.
Â
What is your expected return after one year?
·
5.6%
·
6.0%
·
8.8%
·
7.4%
CONCEPT
Expected Return
11
Select one reason a company's capital structure may include more equity than debt.
·
Taking on more equity means that a company will be more leveraged.
·
Too much debt will decrease a company's volatility.
·
Equity has significant tax advantages that debt does not.
·
Relying too heavily on debt can increase the interest rate that a company must pay on its debt.
12
Which of the following is true of unsystematic risk?
·
It is also known as non-diversifiable risk.
·
The correlation among the returns of assets within a portfolio are irrelevant to this type of risk.
·
Its presence commands a return in excess of the risk-free rate.
·
It can be diversified away by relying on the lack of a tight positive relationship among the returns of a set of individual assets.
CONCEPT
Diversification
13
Company A Company B
Market Value of Equity $400,000 $600,000
Market Value of Debt $100,000 $800,000
Cost of Equity 9% 9%
Cost of Debt 3% 4%
Tax Rate 35% 35%
Â
Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6.5%?
·
Neither Company A nor Company B
·
Only Company A
·
Only Company B
·
Both Company A and Company B
CONCEPT
The WACC
14
Select the true statement about the bankruptcy process.
·
Corporations file bankruptcy petitions with the states.
·
A bankruptcy reorganization plan is voted on by a company's shareholders.
·
A company receives a stay from any collections activity after filing a bankruptcy petition.
·
A Chapter 7 bankruptcy allows a company to restructure its debt.
CONCEPT
Understanding the Bankruptcy Process
15
Curtis purchased stock with an initial share price of $140, and sold it when the share price was $119. While he owned the stock, he earned $10 in dividends.
Â
What was his total percentage return on the investment?
·
-9.24%
·
-7.86%
·
-15.00%
·
-17.65%
CONCEPT
Understanding Returns
16
Which of the following is a tenet of strong-form efficiency?
·
Share prices respond immediately to all information, whether public or private.
·
Future prices cannot be predicted based on past prices.
·
Some forms of technical analysis techniques can be useful for producing excess returns.
·
Investors can use the past prices of securities to predict their future prices.
CONCEPT
Market Efficiency
17
Using the following variables, calculate an organization's cost of common equity.
·Rf: 1.5%
·βs: 1.4
·(Rm – Rf): 8%
·
9.7%
·
12.7%
·
10.2%
·
11.6%
CONCEPT
Valuing Different Costs
18
Marty receives a tip that the price of shares of an oil company are about to fall significantly. In order to avoid a huge loss, he goes into his online brokerage account and sells all of the stock that he owns in the oil company.
Â
What type of market transaction is taking place?
·
Primary market offering
·
Private placement
·
Share buyback
·
Secondary market offering
CONCEPT
The Security Markets
19
If a portfolio regularly falls twice as much as a benchmark index rises, the portfolio's beta coefficient is __________.
·
2.0%
·
0.5%
·
-0.5%
·
-2.0%
CONCEPT
Implications Across Portfolios
Â
1
One reason a company may choose to issue additional debt instead of equity when raising capital is that __________.
·
the company will be less leveraged
·
debt interest payments are tax-deductible
·
equity increases volatility
·
too much equity raises the risk of bankruptcy
2
Anais purchased stock with an initial share price of $52, and sold it when the share price was $60. While she owned the stock, she earned $7 in dividends.
Â
What was her total percentage return on the investment?
·
25.00%
·
19.83%
·
28.85%
·
13.33%
CONCEPT
Understanding Returns
3
You own a small manufacturing business that produces widgets. You have spent $150,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $2 to make and they sell for $15 each, so your variable cost is 13.3% of the overall revenue.
Â
At your current level of operating leverage, how many widgets must you sell to break even?
·
13,482
·
10,000
·
19,950
·
11,539
CONCEPT
Thinking About Operating Leverage
4
Which of the following is true of systematic risk?
·
It cannot be diversified away by holding a pool of individual assets.
·
An investor can avoid this type of risk through calculated investment choices.
·
It is less tightly linked to the market as a whole than unsystematic risk.
·
It does not require additional compensation in terms of expected return.
CONCEPT
Diversification
5
Calculate a company's total leverage given the following information:
·Net income = $80,000
·Revenue = $120,000
·Variable costs = $25,000
·
Cannot calculate without EPS data
·
1.14
·
Cannot calculate without knowing degree of financial leverage
·
1.19
CONCEPT
Thinking About Financial Leverage
6
What is the effect on the stock price of a company that announces it earned higher-than-expected quarterly profits?
·
The stock price will likely go up because the announcement suggests that the company is undervalued.
·
The stock price will likely go down because analysts do not like unexpected surprises from company financial reporting.
·
The stock price will likely go up because it's a clear indication that the financial health of the company is strong.
·
The effect depends on what generated the profits and how analysts forecast this information.
CONCEPT
The Impact of News of Expected Returns
7
Company A Company B
Market Value of Equity $700,000 $900,000
Market Value of Debt $300,000 $200,000
Cost of Equity 8% 10%
Cost of Debt 1.5% 3%
Tax Rate 30% 25%
Â
Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 7%?
·
Only Company A
·
Only Company B
·
Neither Company A nor Company B
·
Both Company A and Company B
CONCEPT
The WACC
8
A security that falls above the security market line is __________.
·
correctly valued for its level of risk
·
attractive for an investor
·
over-valued for its level of risk
·
attractive for a company raising capital
CONCEPT
Understanding the Security Market Line
9
You invest $7,000 in a stock that has a 25% chance of a 6% return, a 35% chance of a 9% return and a 40% chance of a 10% return.
Â
What is your expected return after one year?
·
8.65%
·
8.25%
·
9.00%
·
7.85%
CONCEPT
Expected Return
10
Using the following variables, calculate an organization's cost of preferred stock.
·Dpref: $4
·Ppref: $30
·g: 2%
·
$12.66%
·
15.33%
·
15%
·
24%
CONCEPT
Valuing Different Costs
11
The capital asset pricing model is useful for __________.
·
determining the discount rate on a company's long-term debt
·
valuing the net present value of a project
·
assessing the ratio between risk and return on an investment
·
projecting a company's future performance
CONCEPT
Approaches to Calculating the Cost of Capital
12
The risk that your investment will lose value because your return is dependant on the stability of a secondary investment is known as __________.
·
prepayment risk
·
liquidity risk
·
model risk
·
asset-backed risk
CONCEPT
Risk
13
If you invest in two stocks, and their values both rise on one day and then fall on the next day, they have __________.
·
a large covariance
·
a zero covariance
·
a positive beta value
·
a negative beta value
CONCEPT
Implications Across Portfolios
14
Which of the following is a tenet of semi-strong-form efficiency?
·
Historical data can be used to generate excess returns in the present day.
·
Share prices respond immediately to new information that is made public.
·
Individual investors can "beat" the market if enough information is made public.
·
Some forms of fundamental analysis can provide investors excess returns.
CONCEPT
Market Efficiency
15
A social media start-up wants to raise funds to support growth by offering shares to a select group of investors.
Â
What type of market transaction should they pursue?
·
IPO
·
Share buyback
·
Secondary market offering
·
Private placement
CONCEPT
The Security Markets
16
What is the weighted average cost of capital for a borrower equivalent to?
·
The calculated required return of all sources of capital
·
The valuation of the company's equity
·
The opportunity cost of foregone investments
·
The net present value of all current investments
CONCEPT
The Basics of the Cost of Capital
17
Which of the following is true of portfolio diversification?
·
A diversified portfolio containing positively correlated investments has a lower variance than a portfolio containing a single asset type.
·
A diversified portfolio containing negatively correlated investments has a higher variance than a portfolio containing a single asset type.
·
A diversified portfolio containing negatively correlated investments has a lower variance than a portfolio containing a single asset type.
·
A diversified portfolio containing positively correlated investments has a higher variance than a portfolio containing a single asset type.
CONCEPT
Portfolio Considerations
18
Select the true statement about the bankruptcy process.
·
Companies that reorganize under Chapter 11 are guaranteed a lower cost of capital in the future.
·
A Chapter 11 bankruptcy can be quite complicated and can take a long time to complete.
·
A company must still pay its debts on time while in bankruptcy.
·
A Chapter 7 bankruptcy is the least common form of bankruptcy for businesses.
CONCEPT
Understanding the Bankruptcy Process
19
Mason is a financial analyst who specializes in securities. When providing an analysis of securities to which he has a personal connection, he discloses his conflict of interest.
Â
By doing so, which federal regulation is he complying with?
·
Securities Exchange Act of 1934
·
Securities Act Amendments of 1975
·
Sarbanes-Oxley Act of 2002
·
Securities Act of 1933
Â
Which of the following is true of systematic risk?
·
It is affected by the level of diversification within a portfolio.
·
It can be hedged against by choosing investments with negative correlations.
·
Research shows that investors can best mitigate this type of risk by holding ≤ 30 assets within a portfolio.
·
It is the risk associated with a general downward turn of the market or a market segment.
Â
Lee purchased stock with an initial share price of $32, and sold it when the share price was $50. While he owned the stock, he earned $2 in dividends.
Â
What was his total percentage return on the investment?
·
40.00%
·
36.00%
·
62.50%
·
56.25%
Â
The risk that a bank will receive less interest from a lending product than it originally anticipated is known as __________.
·
operational risk
·
interest rate risk
·
market risk
·
prepayment risk
Â
A stock's beta, which can be affected by surprise news or announcements, is a measure of its __________ in relation to a benchmark like an index fund.
·
price
·
volatility
·
yield
·
credit rating
Â
Like the capital asset pricing model, the bond yield plus risk premium (BYPRP) approach is useful for __________.
·
estimating the equity risk premium
·
determining whether it makes financial sense to pursue a new project
·
calculating the relative time value of money of projected cash flows
·
estimating the required return on a company's equity
Â
Which of the following is a tenet of weak-form efficiency?
·
The market is impossible to predict because investors make decisions in a biased, emotionally-driven fashion.
·
Analyzing patterns in the past pricing of securities will not yield information that will enable investors to "beat" the market.
·
Markets, in general, are informationally inefficient, so investors can earn excess returns by studying patterns.
·
The prices of securities reflect all known present information, but do not account for past publicly available information.
Â
Â
Company A Company B
Market Value of Equity $250,000 $200,000
Market Value of Debt $600,000 $500,000
Cost of Equity 8% 10%
Cost of Debt 2% 2%
Tax Rate 35% 30%
Â
Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 5%?
·
Only Company B
·
Neither Company A nor Company B
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Only Company A
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Both Company A and Company B
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Select the true statement about the bankruptcy process.
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Filing for bankruptcy is the best way for a company to remedy financial distress.
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A Chapter 11 bankruptcy is a liquidation filing.
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In a Chapter 7 bankruptcy, creditors are guaranteed to recoup at least part of what is owed to them.
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Companies that cannot meet their debts can try to reduce their debt obligations before filing for bankruptcy.
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A successful ride-sharing company has decided to raise money for its second phase of expansion by issuing shares of stock and becoming a publicly-traded company, so they create a prospectus for potential investors.
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What type of stock market transaction is taking place?
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Private placement
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IPO
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Share buyback
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Secondary market offering
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What is the combination of debt and equity used by a company to finance its activities known as?
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Capital structure
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Net present value
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Leverage
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Portfolio theory
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