Chester currently has $17,334 (000) in cash and management has decided to issue stocks and bonds worth an additional $8,000 (000).

Assuming that cash from operations will be the same for each of the following activities, which activity exposes this company to the most risk of being issued an emergency loan?

a) A $5 dividend

b) Liquidate the entire inventory

c) Retiring the oldest bond

d) Purchasing $18,000 (000) worth of plant and equipment

Question

Rowan Sullivan

Business

1 July, 02:41

Chester currently has $17,334 (000) in cash and management has decided to issue stocks and bonds worth an additional $8,000 (000).

Assuming that cash from operations will be the same for each of the following activities, which activity exposes this company to the most risk of being issued an emergency loan?

a) A $5 dividend

b) Liquidate the entire inventory

c) Retiring the oldest bond

d) Purchasing $18,000 (000) worth of plant and equipment

+2

Answers (1)

Know the Answer?

Humberto Harvey · Answer 1

Answer: C. Retiring the oldest bond.

Explanation:

The company prone to the risk of being issued an emergency loan if retiring the oldest bond. Because

the share holder are the owners

Bonds are the debt raised by the company for the funding of its operations. This debs have to be paid along with interest through a certain period.

But if the company is unable to pay the debt, therefore, it may have to take a loan.

Equity gives the shareholders ownership in the company and there is nothing have to be paid to them.