Financial Management - Study Mode
[#376] All partners have limited liability in
Correct Answer
(B) limited liability partnership
Explanation
Solution: All partners have limited liability in limited liability partnership. LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
[#377] Most investors are risk averse which means____________.
Correct Answer
(C) they avoid the stock market due to the high degree of risk
Explanation
Solution: Most investors are risk averse which means they avoid the stock market due to the high degree of risk. A risk-averse investor, on the other hand, dislikes risk and, thus, stays away from high-risk stocks or investments and is prepared to forego higher rates of return.
[#378] The company's cost of capital is called ________.
Correct Answer
(B) Hurdle rate
Explanation
Solution: A company's cost of capital is simply the cost of money the company uses for financing. If a company only uses current liabilities and long-term debt to finance its operations, then it uses debt and the cost of capital is usually the interest rate on that debt.The cost of capital is also called the hurdle rate.
[#379] Which of the following would be considered a risk-free investment?
Correct Answer
(D) Treasury bills
Explanation
Solution: Treasury bills would be considered a risk-free investment. A Treasury Bill (T-Bill) is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one year or less.
[#380] Cost of retained earnings is equal to _______.
Correct Answer
(A) Cost of equity
Explanation
Solution: Cost of retained earnings is equal to Cost of equity. The cost of retained earnings is the earnings foregone by the shareholders. In other words, the opportunity cost of retained earnings may be taken as the cost of retained earnings.