Question

1) When there is uncertainty in the marketplace, what happens to yield spreads and why?2) Why do venture capital companies often choose preferred stock for their equity position?3) How does the use of accelerated depreciation encourage investment?

Answer 1

Answer and Explanation:

1. When there is high uncertainty in the market, there will be high yield spreads. This is because the higher the risk the higher the profit or compensation for risk

2.preferred stock positions pay more consistent dividends that common stock positions and also pay higher than bonds.

3.Accelerated depreciation is depreciation method in accounting that deducts higher depreciation expenses in the early life of an asset therefore leaving the company to pay less taxes on these assets and more cash flow. Increased cash flow consequently encourages and leads to more investment