Debt vs.

Equity - Practice True/False Questions

Answer True/False by circling the correct letter.

1. It is always cheaper for a company to issue debt instead of equity when

needing to raise funds

2. Debenture is a type of debt like a bond, the borrower must pay back the
money with interest

3. When issuing equity, you do not give up any ownership, you just pay
interest payments to the lender

4. A lender is like the bank, loaning money. Borrower receives the money
and has to pay it back. An investor buys a stock, and the one receiving the
money is the company, who in exchange must give up some ownership of
the company

5. Interest rates for all companies are always the same

6. Share capital is equity. It is what a company gets if it decides to issue

shares to raise capital instead of using debt

7. LIBOR has to do with equity. It stands for London Investor Organization of

Royalty

8. Companies will choose to either always use debt or always use equity,
almost never a combination of the two.

9. Facebook did an IPO (initial public offering). It did this primarily so it could
expand its business, that was the only reason.

10. The advantages to issuing equity are: cheaper method of financing if the
stock price is high, can reduce debt/avoid increasing debt more, no
interest payments, recognition from having a public stock, stock incentives
for executives, and with stock a company can now do future financings
using stock, if it wishes.

11. Research Analysts work for companies, issuing reports about the
company and then showing the reports to investors

12. A stock chart shows the number of investors invested in your stock and
the date they bought or sold your stock, including their address and
country

13. As an investor there is more risk but more possible reward by buying
stocks than buying debt

14. As a company it is always easy to find equity investors, but not every
company can get debt from a bank
1 false
2 true
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11 false
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