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p18 Which of the following is true of debt financing? Firms whose sales are very stable are more likely to rely on debt financing than firms whose sales are volatile. Firms that pay dividends are more likely to use less debt financing than firms that retain most of their current earnings. Firms that are subject to a great degree of operating leverage are more likely to use debt financing than firms that don’t utilize fixed costs. All of the above

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.

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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)How does a profitable capital market help reduce the prices of goods and services? 2) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of every new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain.

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.

6. Backroads Sporting Goods is trying to determine its optimal capital structure, which now consists of only debt and common equity. The firm does not currently use preferred stock in its capital structure, and it does not plan to do so in the future. To estimate how much its debt would cost at different debt levels, the company's treasury staff has consulted with investment bankers and, on the basis of those cussions, has created the following table: 4 Debt-to-Capital Ratio 0.0 0.2 0.4 0.6 a 9.56% h 10.48% Equity-to- Capital Ratio 11.13% d. 11.45% e. 12.25 % (w.) 1.0 0.8 0.6 0.4 0.2 Debt-to-Equity Ratio (D/E) 0.00 0.25 0.67 1.50 4.00 Bond Rating A BBB BB Before-Tax Cost of Debt 65% 7.5 9.5 D Backroads uses the CAPM to estimate its cost of common equity. r.. The company estimates that the risk-free rate is 6%, the market risk premium is 5%, and its tax rate is 40%. Backroads estimates that if it had no debt, its "unlevered" beta, bu, would be 1.25. On the basis of this information,…

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