Which one of the following statements is correct?Seasonal needs are financed with short-term loans when firms adhere toa flexible financing policy.A flexible financing policy tends to increase the risk of encounteringfinancial distress.Long-term interest rates tend to be less volatile than short-term rates.Most firms tend to finance inventory with long-term debt.Short-term interest rates are generally higher than long-term rates.

Introduction: The cost of financing is an important consideration for any business. Long-term and…

Answered: Which one of the following statements…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If the Federal Reserve takes on a policy of monetary restriction, the supply curve for loanable funds will move up and to the left and equilibrium interest rates will fall the demand curve for loanable funds will move down and to the left and equilibrium interest rates will fall the supply curve for loanable funds will move up and to the left and equilibrium interest rates will rise the demand curve for loanable funds will move up and to the right and equilibrium interest rates will rise none of the above
When estimating cost of debt, the firm should not simply use current short-term rates because these rates do not reflect expectations regarding Group of answer choices long-term inflation expansionary monetary policy contractionary monetary policy short-term inflation
Economic conditions in Fredland have caused the demand for money to increase which has changed the nominal interest rate. If the central bank wants to counteract this change, which of the following is an appropriate open market operation to achieve that? Select one: O a. Raise the discount rate. O b. Increase taxes. O c. Decrease the reserve requirement. O d. Sell bonds. O e. Buy bonds.
Both EV-to-EBITDA and PE multiples can be linked to interest rates through the discount rate used in discounted cash flow valuation. Holding all else equal, when discount rates are higher, valuation ratios are lower. Perhaps because of this, we tend to see stock prices as well as, the value of private business transactions decline when interest rates increase. Macroeconomists like to describe interest rates as consisting of two components: the real interest rate component and an expected inflation component. In some situations, increases in interest rates are the result of an increasing real interest rate; in other situations, the cause of an interest rate increase is an increase in expected inflation. How might valuation ratios be expected to respond to an interest rate increase generated by an increase in expected inflation versus an interest rate increase that represents an increase in real interest rates?
Please help with the below minicase. Directions: The best way to do this case is to use relevant credit information and calculate some financial ratios: ROA, debt ratio, liquidity ratios, ROE, profit margin, Inventory and Asset turnover. Then look at breakeven point probability, and finally the possibility of a repeat order. What can you say about Miami Spice’s creditworthiness? What is the break-even probability of default? How is it affected by the delay before MS pays its bills? How should George Stamper’s decision be affected by the possibility of repeat orders? MiniCase: George Stamper a credit analyst with Micro-Encapsulators Corp. (MEC) needs to respond to an urgent email request from the southeast sales office. The local sales manager reported that she had an opportunity to clinch an order from Miami Spice (MS) for 50 encapulators at $10,000 each She added that she was particularly keen to secure this order since MS was likely to have a continuing need for 50 encapulators a…
Contraction risk is the risk that loan principal will be repaid more rapidly than expected, typically when interest rates have increased. Select one: True False

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