A firm creates value by?

Multiple Choice:

1. paying more cash to its creditors and stockholders than the amount it received from them.

2. purchasing assets that create cash inflows equal to the cost of those assets.

3. borrowing long-term debt.

4. having a greater cash inflow from its stockholders than its outflow to them.

5. generating sales whether or not payment is received for all of those sales.

Question

Business

Urijah

21 October, 01:27

A firm creates value by?

Multiple Choice:

1. paying more cash to its creditors and stockholders than the amount it received from them.

2. purchasing assets that create cash inflows equal to the cost of those assets.

3. borrowing long-term debt.

4. having a greater cash inflow from its stockholders than its outflow to them.

5. generating sales whether or not payment is received for all of those sales.

+5

Answers (1)

Know the Answer?

Robert Sanford · Answer 1

Paying more cash to its creditors and stockholders than the amount it received from them (1)

Explanation:

Stockholders are the primary owners of the company who have invested their money in the company's shares i. e equity holders and expect a reasonable returns higher than their investment.

Creditors are money lenders like banks i. e debt holders who have given loan or bank overdraft to the company and expecting the company to pay back at an agreed date with interest.

A firm creates value by being able to invest money sourced from various investors into a viable project that guaranteed greater returns than the weighted average cost of capital.