True or False: When a company borrows money to finance the purchase of an asset to use in its business, one of their likely goals is to earn a rate of return on that asset which is lower than the interest rate on the loan borrowing. Select one: True False

True or False: When a company borrows money to finance the purchase of an asset to use in its business, one of their likely goals is to earn a rate of return on that asset which is lower than the interest rate on the loan borrowing. Select one: True False

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Default Pay Yourself First Interest occurs when a borrower is unable to meet the obligation of debt…

A: In this case we are given different terms related to finance in general and to use of borrowed money…

Q: 1b) Banks offer overdraft facilities and term loans, among other services, to their corporate…

A: The answer is stated below:

Q: debt financing.

A: Debt financing refers to the amount which is raised by the company after selling the debt…

Q: Is it financial expediency for firms to borrow?

A: The acquisition of debt funds by businesses is far more convenient than any form of funds and far…

Q: Financing with Debt Versus Equity. It is commonly understood that the cost of financing a…

A: For any entity, there are two ways of raising funds: Equity Financing and Debt Financing. Companies…

Q: Which statement is true? Financing the property may not be beneficial to the owner in terms of yield…

A: Financing the property means making arrangements to procure funds to purchase the property. This may…

Q: Determine whether the sentences are True Or False: 1) Stabilizing the economy is the primary…

A: 1) Answer: False Central banks have the main task of stabilizing economy. Commercial banks have the…

Q: A company that earns a higher return with borrowed funds than it pays in interest on those funds is…

A: Financial leverage is the strategic use of borrowed funds to augment the return on investment. In…

Q: Which of the following is true regarding a company assuming more debt? Select one: a. Assuming…

A: WHEN A COMPANY BORROWS MONEY TO BE PAID IN FUTURE WITH INTEREST IT IS KNOWN AS DEBT . MORE OF DEBT…

Q: Which statement is true? * General borrowings may earn investment income deductible against general…

A: Business may borrow funds for the purpose of business. These borrowings can be general borrowings or…

Q: whether the statement is true or false.

A: Asset-based financing is the finance availed by a company in lieu of its assets. In such cases, the…

Q: 1. Explain the main two types that the company could prefer to use them as a source of finance?

A: There are various types of sources of finance, but the main two sources which the company used are…

Q: Many types of debt including auto loans, student loans and credit debt are securitized. The…

A: Securitization is the procedure where an issuer designs a marketable financial instruments by…

Q: 2. Protecting Interest Income/Revenue • From the banker’s point of view, when the banker quotes a…

A: Interest Rate Risk - The impact on the earning, decrease in value of the assets or increase in…

Q: TRUE OR FALSE 1. Short-term financial policies that are flexible with regard to current assets…

A: 1. Short-term financial policies that are flexible with regard to current assets includes keeping…

Q: Why do companies accelerate depreciation on their tax return but often use slower depreciation…

A: Companies generally use accelerated depreciation on their tax return, as these methods result in a…

Q: . Protecting Interest Income/Revenue • From the banker’s point of view, when the banker quotes a…

A: Interest rate swap It is an agreement between two parties where one party pays another a fixed…

Q: Match term to the correct definition. The balance on which interest is paid.…

A: Definition with their correct matches and explanations are provided as below: Definition…

Q: A company’s ability to earn more on borrowed money than the associated interest cost so that net…

A: Solution: Financial leverage means company borrow money for investment in assets instead of…

Q: Which statement is true about credits? Credits always increase the net worth of a company.…

A: Introduction: A credit, frequently abbreviated CR, is an accounting word for an entry made on the…

Q: When Balance Sheets are being prepared, Assets and Liabilities are recorded at the current values,…

A: The correct answer for the above mentioned questions in the following steps for your reference.

Q: Many businesses finance their investment activities internally. Should internal financing affect the…

A: Internal financing: Under internal financing, a business firm uses its profits or assets as a…

Q: Case C In your opinion, would the following factors tend to favor borrowing or leasing as a…

A: Borrowing or leasing is a finance alternative wherein assets can be used in the business without…

Q: Given a financial institution that make money in three ways: interest income, interest income, and…

A: Banks and Financial institutions make most of their money from loaning and re-loaning money. Low…

Q: If the cost of borrowing is lower than the operating return .. business by increasing borrowing in…

A: The business is financed by equity as well as debt. The ROE is increased if the company has started…

Q: What is Human Capital? A. Part of the country's current output and imports is not consumed or…

A: The objective of the question is to identify the correct definition of Human Capital from the given…

Q: True/False and Explain: Josephine says that firms which obtain debt financing by posting collateral,…

A: The objective of the question is to determine whether the statement made by Josephine is true or…

Q: Explain three reasons why a company will prefer long-term borrow to short-term borrow

A: Long-term debts are debts that have a maturity of 12 months and above. Government bonds, mortgages,…

Q: Do you think companies have more incentive to report securitization as a sale or secured borrowing…

A: Window Dressing: It refers to the more formal steps that have been done to enhance the financial…

Q: Provide a specific transaction that the bank could implement to minimize its interest rate risk. the…

A: In banking, interest rate risk is the possibility of suffering losses as a result of changes in…

Q: hich one is not an incentive for a bank to Securitize its mortgage loans? A) Reduce insurance…

A: The objective of the question is to identify which among the given options is not a reason for a…

Q: Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative…

A: Insolvency Risk: Insolvency risk is a probability that an enterprise cannot satisfy its debt…

Q: If a company borrows more than it pays in interest. Select one: O a.Cash flow to stockholders will…

A: As per international accounting standard 7 on cash flow statement, if a company borrows it will…

Q: From the point of view of the borrowing business, loan capital tends to be cheap but risky. In what…

A: Company require large amounts of money for growth and expansion and money can be raised through debt…

Q: How does the WACC DCF methodology mechanically incorporate interest tax shields (select the best…

A: The correct answer is "By estimating a discount rate that incorporates the tax benefits of debt."In…

Q: we know that depreciation is linked to the net cash flows of the company's investments. In fact, any…

A: Depreciation expense: Depreciation expense is the reduction in a particular asset due to its use or…

Q: Which of the following is a disadvantage of long-term debt as a means of company financing? Group…

A: Funds are very important and necessary for smooth running of a business organization. A business has…

Q: How should a bank structure its liquid assets portfolio to take advantage of falling interest rates…

A: Liquid assets are cash and assets that can be converted to cash quickly if needed to meet financial…

Q: Which of the following is incorrect about debt financing? A. Debt financing always generates excess…

A: Debt financing is a common method for companies to raise capital by borrowing funds. While it offers…

Question

True or False:
When a company borrows money to finance the purchase of an asset to use in
its business, one of their likely goals is to earn a rate of return on that asset
which is lower than the interest rate on the loan borrowing.
Select one:
True
False

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

A company can either purchase or lease an asset. When comparing the two alternatives, which of the following is not an advantage of buying and financing the asset? (a) the possibility of receiving an investment tax credit (b) Obtaining a tax deduction for the depreciation expense (c) The potential of the asset to appreciate in value (d) Improved financial leverage
How can a company expand itself out of business, and how can a finance management prevent this from happening?
If we hold all other factors the same, an increase in interest rates will: a. Decrease the present value of a stream of constant payments we expect to receive. b. Increase the present value of a stream of constant payments we expect to receive. c. Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account. d. No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.
Please Make this notes clearer and perfectly written. Here is my notes: At times companies engage in repurchase agreements; are from the perspective of the borrowers. they borrow money to finance themselves short term and the value of the money they borrow whatever that value is they agreed to pay the lenders when they return the money with a higher value even if they borrow low and pay high and that difference is their cost of funding repurchase agreements repurchase agreements are always collateralized with high quality paper government securities it can also be a commodity like precious metals gold or silver repos besides the collateralization. The federal funds that's an important take away that one member of the treasury reserve system lends to another short term loans that one member of the treasury reserve system lends to another The banks have surplus reserves with our central bank some are in deficit the who the ones who are in surplus lend to the ones who are in deficit…
Which of the following is an example of faithful representation? A Showing lease payments as a rental expense B Being prudent by recording the entire amount of a convertible loan as a liability C Creating a provision for staff relocation costs as part of a planned restructuring D Recording a sale and repurchase transaction with a bank as a loan rather than a sale
Which of the following statements about "avoidable interest" is false? it is computed only on self-constructed assets. it is computed using a weighted-average interest rate on debt and equity financing. it increases assets on the balance sheet. O it is an approximation of the interest expense the firm would have incurred if it financed all construction through debt.
Why would any seller offer trade financing, since it ties up working capital without generating any income through interest payments?
True (t) or False (f) _____ A reason some companies purchase investments is because they generate a significant portion of their earnings from investment income.
TRUE OR FALSE 1. Short-term assets can always be financed with short-term debt, and long-term assets can be financed with long-term debt and equity, in an ideal economy. 2. Security for short-term or long-term loans usually consists of accounts receivable, inventories, or both.
What are the major economic functions of the interest rate? How might the fact that many businesses finance their investment activities internally affect the efficiency with which the interest rate performs its functions?
Securitisation of loans results in banks: 1. Transferring the credit risk of loans from their balance sheet to other financial institutions. II. Reducing due diligence in the loan appraisal process. III. Increasing the monitoring of these loans. IV. Freeing up capital so that they can bypass capital requirements. O Only II is true. O I, II and IV are true. O Only I and II are true. O Only I is true. O Only III is true.
An investment made in a fixed asset is similar to an investment made by a bank when it lends money. True or false?