Judge each financing claim

Exercise and reference answers

Questions

1. Statement is true

   Yes

   Statement

   Interest paid on debt is a tax-deductible expense for the borrowing firm.

2. Statement is true

   No

   Statement

   Dividends paid to owners are tax-deductible in the same way.

3. Statement is true

   Yes

   Statement

   Preferred dividends must be paid before any common dividends.

4. Statement is true

   No

   Statement

   Equity carries a stated maturity date by which it must be repaid.

5. Statement is true

   Yes

   Statement

   When market interest rates rise, the price of an existing bond falls.

6. Statement is true

   No

   Statement

   An option obliges its holder to buy or sell at the set price.

Instructions

Tap true or false for each statement.

Explanation