Question

The concept of an equity premium means that holders of stocks will tend to earn more over time than holders of bonds because stocks are more risky.

a.True

b.False

If a company borrows money and uses these funds to buy back its own stock it is increasing its financial leverage.

a.True

b.False

Market evidence shows that, on average, the price of a company's stock will increase when it announces a new round of equity financing."

a.True

b.false

Since depreciation does not involve cash, it should be ignored completely in discounted cash flow analysis."

a.True

b.False

Answer 1

1.Yes true, stocks are more risky than bonds. Bonds pay investors fixed rate of interest income while stocks sometimes pay dividend and all. where we have more risk , the return is also more.hence the given statement is true.

2. The given stateement is false, financial leverage is the use of funds borrowed to purchase the assets with expectation of income or capital gain from the new asset. here buyback of its own stock not ocmes under assets. and there is no income will comes from this assets. Hence given statement is worng.

3.False. equity financing means, increases the number of outstanding shares for the company. This means stock value for a exisiting shareholders will be decraesed. Increasing in shares will lead to decrease the stock value. hence given sttaement is worng

4. Flase, the given statement is wrong. The depereciation should be included in the caluclation of Discounted cash flows . yes depreciation does not involve cash but also it is considered for caluclation