Multiple Choice
Why are a firm's target capital structure values used when computing the average flotation cost for issuing new securities?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Which of the following represents a method of long-term debt financing for a corporation?
A
Paying dividends
B
Retaining earnings
C
Issuing bonds
D
Selling common stock
Verified step by step guidance1
Understand the concept of long-term debt financing: Long-term debt financing refers to methods a corporation uses to raise funds that must be repaid over an extended period, typically more than one year. This often involves borrowing money or issuing debt instruments.
Analyze the options provided: Paying dividends and retaining earnings are not methods of financing. Paying dividends is a distribution of profits to shareholders, and retaining earnings involves keeping profits within the company rather than distributing them.
Evaluate the option of selling common stock: Selling common stock is a method of equity financing, not debt financing. Equity financing involves raising capital by selling ownership shares in the company.
Focus on issuing bonds: Issuing bonds is a method of long-term debt financing. Bonds are debt instruments that corporations issue to investors, promising to pay back the principal amount along with interest over a specified period.
Conclude that issuing bonds is the correct answer: Bonds represent a commitment to repay borrowed funds, making them a clear example of long-term debt financing for a corporation.
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