(35) Which of the following is LEAST likely to be a large-scale USE of borrowed funds...

(35) Which of the following is LEAST likely to be a large-scale USE of borrowed funds by businesses? (a) capital expenditures; (b) financing of mergers and acquisitions; (c) repayment of revolving credit; (d) share buybacks and dividend payouts.

(37) From among the following, a simplified examination of funding for investment suggests that the most expensive source typically is: (a) retained earnings; (b) bond issuance; (c) credit in the form of bank loans; (d) issuance of new shares of stock.

(38) In the early stages of an economic boom, a borrower’s risk is likely to be: (a) related to deflation; (b) due to sub-par food in the cafeteria; (c) due mainly to the solvency of the lender; (d) relatively low.

(39) Of the following, which is LEAST likely to be a consideration in determining the rate of return on investment necessary to validate a capital investment? (a) the rate of depreciation of the capital good purchased; (b) consumer confidence; (c) the rate of business profit taxation; (d) the present value of the future stream of returns.

Expert Solution

1. The answer is D, "Share buybacks and divident payouts"

Business are less likely to borrow for share buybacks and dividend payout as it increases debt in their balance sheet.

2.The most expensive source typically is "Issuance of new shares "

Other forms are less expensive because Interest payment is tax deductible and reduces the tax liablitity , whereas rest of the earnings have to be distributed among shareholders.

3.In the early stages of an economic boom, a borrower’s risk is likely to be "relatively low"

In economic boom, businesses ussually performs well due to strong consumer spending.

4. LEAST likely to be a consideration in determining the rate of return on investment necessary to validate a capital investment is " the rate of depreciation of the capital good purchased"

Other factors are considered in long term investment plans, whereas rate of depreciation dosent matter in long term investment planning as it dosent constitute higher cost.

Rahul Sunny answered 2 years ago

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