Question

1Equity capital can be raised through A) the money market. B) the NYSE bond market C) retained earnings and the stock market D) a private placement with an insurance company as the creditor 2.As a form of financing, equity capital A) has a maturity date B) is only liquidated in bankruptcy. C) is temporary D) has priority over bonds 3.Key differences between common stock and bonds include all of the following EXCEPT A) common stockholders have a voice in management; bondholders do not B) common stockholders have a senior claim on assets and income relative to bondholders. C) bonds have a stated maturity but stock does not. D) interest paid to bondholders is tax-deductible but dividends paid to stockholders are not 4.The cost of preferred stock is A) lower than the cost of long-term debt. B) higher than the cost of common stock. C) higher than the cost of long-term debt and lower than the cost of common stock. D) lower than the cost of convertible long-term debt and higher than the cost of common stock 5.A firm has issued cumulative preferred stock with a $100 par value and a 12 percent annual dividend. For the past two years the board of directors has decided not to pay a dividend. The preferred stockholders must be paid the common stockholders. A) $ 0/share B) S12/share C) $24/share D) $36/share prior to paying

Answer 1

1. Equity capital is raised in Capital Market and not in money market or bond market. Retained earnings refers to net income not distributed to shareholders its form part of capital.

Answer C. Retained Earnings and Stock market