Question

Capital allocation in the market is a major function of stock or bond market. The allocation should be based on the performance of firm measured by accounting figures.

True

False

Answer 1

The sentence given in question is not true because,

1) Capital allocation in market is major function of stock or bond market but the allocation is not only based on performance measured by.accounting measure

2) The tax liability that would be arise in case of distribution and allocation and how actual allocation can possible.should be known

3) Accounting effect. of transactions and tax effect of such transaction may differ for the same transaction so we will have to check that effect as ultimately we have to take decision based on cash flow arise or have to spend by compnay..

4) And capital allocation has also affected by other factors such as decision taken by board of directors as well spreading of news which have effect on company capital allocation

5) expectation of stakeholders will also going to affect capital allocation

So it is not ture to say that allocation of capital is based on performance of fir measured by accounting figures..