T/F XYZ company has a book value of $1billion and it has ten million shares outs
ID: 2656514 • Letter: T
Question
T/F
XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total market value of your shares is now higher.
XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total book value of your shares is now higher.
Steve’s Bicycle Repair Shop, Inc., has $150,000 in assets (tools, refurbished bikes, parts). Owners’ equity is the full $150,000. Now Steve wants to borrow $10,000 in order to stock new bikes. This will reduce the equity in the company.
Steve’s Bicycle Repair Shop, Inc., has $150,000 in assets (tools, refurbished bikes, parts). Owners’ equity is the full $150,000. Now Steve wants to borrow $10,000 in order to stock new bikes. This will add to the equity in the company.
Shareholders in S corporations have limited liability.
An S corporation may buy shares of a C corporation, but a C corporation may not buy shares of an S corporation
The Federal Deposit Insurance Corporation insures all deposits against default.
The Federal Deposit Insurance Corporation insures some deposits against default.
A company begins the week with a leverage ratio of 1.25. During the week it issues additional (common) shares and uses the funds to purchase equipment (with no other changes). Its leverage ratio at the end of the week remains 1.25.
A company begins the week with a leverage ratio of 1.25. During the week it issues additional (common) shares and uses the funds to purchase equipment (with no other changes). Its leverage ratio at the end of the week is greater than 1.25.
A company begins the week with a book value-per-share of $25. During the week it issues additional (common) shares at a price-per-share of $21. Compared to its (total) book value as of the beginning of the week, its new (total) book value is lower.
A company begins the week with a book value-per-share of $25. During the week it issues additional (common) shares at a price-per-share of $21. Compared to its (total) book value as of the beginning of the week, its new (total) book value is higher.
Explanation / Answer
I have answered first four with explanation:
1.
False: XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total market value of your shares is now higher.
Reason: The act of splitting shares will not increase the total market value of the shares because split just increases the number of shares in hand. Total valuation of shares at overall level remains same.
2.
False: XYZ company has a book value of $1billion and it has ten million shares outstanding, of which you own one hundred. The company splits each share into two. The total book value of your shares is now higher.
Reason: Splitting of share would not increase overall book value of the shares it reduces the per share price and increases the holding of shares. Book value at overall level remains same in dollar terms though we see increase in number of outstanding shares.
3.
False: Steve’s Bicycle Repair Shop, Inc., has $150,000 in assets (tools, refurbished bikes, parts). Owners’ equity is the full $150,000. Now Steve wants to borrow $10,000 in order to stock new bikes. This will reduce the equity in the company.
Reason: Borrowing would increase the debt of the firm keeping equity at constant value. Borrowing increases debt equity ratio instead of reducing equity “value” in particular.
4.
False: Steve’s Bicycle Repair Shop, Inc., has $150,000 in assets (tools, refurbished bikes, parts). Owners’ equity is the full $150,000. Now Steve wants to borrow $10,000 in order to stock new bikes. This will add to the equity in the company.
Reason: Borrowing adds up to debt. Equity doesn’t get impacted by act of borrowing. The value wise equity will remain constant with this act.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.