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Debt vs. Equity - Practice True/False Questions

The document discusses the differences between debt and equity as methods for companies to raise funds. It provides true/false questions about key concepts. Debt involves borrowing money from lenders that must be paid back with interest, while equity involves selling shares of the company and giving up partial ownership. While debt has fixed interest costs, equity is riskier for investors but can offer greater rewards. Companies may use a combination of both debt and equity depending on their needs and ability to attract investors.

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34 views2 pages

Debt vs. Equity - Practice True/False Questions

The document discusses the differences between debt and equity as methods for companies to raise funds. It provides true/false questions about key concepts. Debt involves borrowing money from lenders that must be paid back with interest, while equity involves selling shares of the company and giving up partial ownership. While debt has fixed interest costs, equity is riskier for investors but can offer greater rewards. Companies may use a combination of both debt and equity depending on their needs and ability to attract investors.

Uploaded by

Jem
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Debt vs.

Equity - Practice True/False Questions

Answer True/False by circling the correct letter.

1. It is always cheaper for a company to issue debt instead of equity when


needing to raise funds

2. Debenture is a type of debt like a bond, the borrower must pay back the
money with interest

3. When issuing equity, you do not give up any ownership, you just pay
interest payments to the lender

4. A lender is like the bank, loaning money. Borrower receives the money
and has to pay it back. An investor buys a stock, and the one receiving the
money is the company, who in exchange must give up some ownership of
the company

5. Interest rates for all companies are always the same

6. Share capital is equity. It is what a company gets if it decides to issue


shares to raise capital instead of using debt

7. LIBOR has to do with equity. It stands for London Investor Organization of


Royalty

8. Companies will choose to either always use debt or always use equity,
almost never a combination of the two.

9. Facebook did an IPO (initial public offering). It did this primarily so it could
expand its business, that was the only reason.

10. The advantages to issuing equity are: cheaper method of financing if the
stock price is high, can reduce debt/avoid increasing debt more, no
interest payments, recognition from having a public stock, stock incentives
for executives, and with stock a company can now do future financings
using stock, if it wishes.

11. Research Analysts work for companies, issuing reports about the
company and then showing the reports to investors

12. A stock chart shows the number of investors invested in your stock and
the date they bought or sold your stock, including their address and
country

13. As an investor there is more risk but more possible reward by buying
stocks than buying debt

14. As a company it is always easy to find equity investors, but not every
company can get debt from a bank
1 false
2 true
3 false
4 true
5 false
6 true
7 false
8 false
9 false
10 true
11 false
12 false
13 true
14 false

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