Question

True or False

In liquidation, equity holders claim firm's assets after all creditors.

Equity holders are last in line to other players in the firm, which undermines the incentive for business innovation.

Bondholders' upside potential in a firm's profit sharing is capped as opposed to equity holders.

NYSE is a primary market.

By Dividend Discount Model (DDM), if a company never ever pays any cash in the future, its stock should be worth zero.

Answer 1

In liquidation, equity holders claim firm's assets after all creditors. TRUE

Creditors have the first claim over the firm's assets in liquidation

Equity holders are last in line to other players in the firm, which undermines the incentive for business innovation. FALSE

Even though they are last in line to other players in the firm, they have unlimited (theoretically) upside potential. So, this doesn't undermine the incentive for business innovation

Bondholders' upside potential in a firm's profit sharing is capped as opposed to equity holders. TRUE

NYSE is a primary market. FALSE

NYSE is a secondary market.

By Dividend Discount Model (DDM), if a company never ever pays any cash in the future, its stock should be worth zero. TRUE

Dividend discount model assumes that the company pays dividends. If it doesn't then the stock is worth zero.

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