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Question 18 The pecking order states that firms should: issue debt first. issue new equity first. always issue debt then the market won't know when management thinks the security is overvalued. use internal financing first.

If the Fed wants to decrease the money supply it will ______ Treasury securities in open market operations.   Question 12 options:   buy   sell

Ch. 14. Which one of the following is NOT an implication of market efficiency for corporate finance? Group of answer choices Managers can reap many benefits by paying attention to market prices Firms cannot successfully time issues of debt and equity Managers cannot profitably speculate in foreign currencies and other instruments Firms can successfully time issues of debt and equity Managers cannot fool the market through creative accounting

which of the following is an example of unsystematic risk? decrease income tax for all company soft tech won a new sales contract increase in inflammation rate deccrease in government bond rate

Which of the following is most consistent with using debt to reduce agency costs or conflicts?   Question 11 options:   Increasing debt reduces a firm’s business risk   The interest paid on debt reduces taxable income and income taxes   The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly   The issuance of debt helps firms increase their credit rating

CHAPTER 22. Finance companies and risk Which of the following actions would lessen the interest rate risk a finance company faces?A. Royal Crown no longer offers fixed-rate loans and has shortened the average life of its assets. B. Marshall Financial Inc. claims that they will approve loans for all borrowers regardless of credit history at a low interest rate. C. Wellspring Trust now receives all of its funds through borrowing rather than deposits. D. New Generation now offers fixed-rate loans with terms that are twice as long as they were before.

1. Suppose that a financial institution has a negative $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a rise in interest rates? 2. Suppose a financial institution has a positive $25 million difference between its assets and liabilities. Is the institution exposed to refinancing risk or reinvestment risk and what will happen to net income if there is a drop in interest rates?

Discuss the factors that affect the WACC. Also discuss how these factors may differ somewhat from country to country.  For example, if a company has a stronger balance sheet than other companies in its industry, investors will likely be willing to accept a lower interest rates on its bonds and this will lower the company’s overall cost of capital.

Financial slack is the amount of unused access to debt markets or bank financing. Which theory of capital structure would place the highest value on maintaining financial slack for a firm that is not in financial distress?   Question 10 options:   a)  Trade-off theory   b)  Debt financing as a managerial constraint   c)  Pecking order theory   d)  Modigliani & Miller irrelevance theory

An analyst at a company notes that its cost of debt is far below that of equity. He concludes that it is important for the firm to maintain the ability to increase its borrowing because if it cannot borrow, it will be forced to use more expensive equity to finance some projects. This might lead it to reject some projects that would have seemed attractive if evaluated at the lower cost of debt.    How do you balance the amount of equity and debt? Explain the significance of maintaining the ability to increase borrowing capacity for a company with a lower cost of debt compared to equity. How does this impact project evaluation and investment decisions, and what role does the concept of cost of capital play in such considerations?

5.What is the major drawback of debt financing? Select one: You have to pay back the money Increasing debt changes the gearing ratio of the firm Interest payments must be made before shareholder dividends and irrespective of fluctuations in profits Lenders often require security of the loan against assets of the company