The King's College Business Strategy Quiz #4 Finance

A share of stock is considered equity because it represents ownership in a company. When an individual purchases a share of stock, they become a shareholder and have a claim on the company's assets and earnings. Shareholders also have the right to vote on important company decisions and may receive dividends if the company distributes profits. Equity is a type of investment that carries more risk than debt, but also has the potential for higher returns.

This statement is true because it states that a company cannot issue more than 20% of the value of its outstanding shares in new stock issues. This is a common practice to prevent dilution of existing shareholders' ownership and to maintain the stability of the stock price. By limiting the amount of new stock that can be issued, the company ensures that the value of existing shares is not significantly diluted and protects the interests of current shareholders.

This statement means that if there is any remaining balance on an emergency loan after a certain round, it will be considered as current debt in the next round. This suggests that the outstanding balance will not be forgiven or forgotten, but rather carried forward as a debt to be repaid in the future. Therefore, the correct answer is true.

The statement is true because debt rates are influenced by market conditions and can change over time. Market rate fluctuations can cause interest rates to increase or decrease, affecting the cost of borrowing for individuals or businesses. Therefore, it is important to consider market conditions when taking on debt or managing existing debt.

Newly issued long term bonds will have a coupon rate that is 1.4% higher than the coupon rate of the existing, outstanding current debt. This means that the interest rate paid on the new bonds will be higher than the interest rate paid on the existing debt. Therefore, the statement is true.

The statement "Current debt must be paid back in 30 days" is false. It implies that any existing debt needs to be repaid within a 30-day period, which is not always the case. The repayment terms for debt can vary depending on the agreement between the borrower and the lender. Some debts may have longer repayment periods, such as loans or mortgages, while others may require immediate payment, such as credit card bills. Therefore, it is incorrect to assume that all debts must be paid back within 30 days.

Short term debt cannot be borrowed up to 50% of Accounts Receivables and 50% of the value of your inventory. The statement is incorrect because the borrowing limit for short term debt depends on various factors such as creditworthiness, collateral, and the lender's policies. It is not a fixed percentage based on the value of Accounts Receivables and inventory.

The statement is false because the given explanation states that long-term debt in the simulation has a maturity of 15 years. However, it does not provide any information about the actual maturity period of the long-term debt in the simulation. Therefore, we cannot determine the correctness of the statement based on the given explanation.

The statement is false because long-term debt rates do not fluctuate over time. Once a long-term debt is issued, the interest rate on the debt remains fixed for the duration of the debt. This means that the interest rate does not change regardless of any fluctuations in the market or economy. Therefore, the correct answer is false.

Long-term debt holders (bondholders) typically loan up to a certain percentage of the value of capacity, which is often lower than 70%. Therefore, the statement that they will be willing to loan up to 70% of the value of capacity is false.