Questions
COMM_V 298 201-207 2024W2 Class 1-3: Practice Quiz
Multiple dropdown selections
For each of the characteristics, determine whether they are characteristics of debt financing or equity financing. Company has a legal obligation to pay back the investors: Debt Investors can expect to receive a steady stream of cash flows: [ Select ] Debt Equity The cash flows received may be of varying values: [ Select ] Debt Equity These investors have control over company decisions: Equity These investors are the residual claimants: [ Select ] Equity Debt From the company's perspective, this type of financing is preferred when the company is financially successful: [ Select ] Debt Equity From the investor's perspective, this type of financing is preferred when the company is financially successful: Equity
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Step-by-Step Analysis
The question asks you to classify each characteristic as either debt financing or equity financing, and it presents a series of statements with blanks to fill. We'll analyze each item in sequence, clarifying why the given choice fits or why an alternative would not.
1) Company has a legal obligation to pay back the investors: Debt
- Rationale: Debt financing involves a contractual obligation to repay lenders or bondholders. The principal and typically periodic interest must be paid regardless of the company's profits, making the obligation explicit and legal. Equity does not require repayment to shareholders, so selecting Debt aligns with the core feature of debt agreements.
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For each of the characteristics, determine whether they are characteristics of debt financing or equity financing. Company has a legal obligation to pay back the investors: [ Select ] Debt Equity Investors can expect to receive a steady stream of cash flows: [ Select ] Equity Debt The cash flows received may be of varying values: [ Select ] Debt Equity These investors have control over company decisions: [ Select ] Debt Equity These investors are the residual claimants: [ Select ] Debt Equity From the company's perspective, this type of financing is preferred when the company is financially successful: [ Select ] Debt Equity From the investor's perspective, this type of financing is preferred when the company is financially successful: [ Select ] Equity Debt
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