Suppose you are the president of a small, publicly - traded corporation. Since you believethat your firm's stock price is temporarily depressed, all additional capital funds requiredduring the current year will be raised using debt. In this case, the appropriate marginal costof capital for use in capital budgeting during the current year is the after-tax cost of debt.Question 2 options: True False

Dear student, kindly check the answer in the explanation box below.Explanation:Dear student, kindly…

Answered: Suppose you are the president of a…

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 managers of a company have inside information about the company’s future performances and such inside information is unknown to outsiders, then the company’s managers are most likely to use _____ to finance its project investment Group of answer choices a. the company’s retained earnings b. debt borrowing from banks c. share issuance to new investors d. there is no difference among the above three funding options
Which of the following statements is/are CORRECT? O 11 Capital budgeting evaluates timing and risk of future cash flows, except for 1) size of cash flows. O 2) Corporate shareholders have the lowest claim to a firm's cash flows. 3) The primary goal of financial management is to maximize stock price. 4) Both a and c are correct. O 5) Both b and c are correct.
When a firm has less current assets to pay off its current liabilities, it has ______ liquidity risk. Such a firm is likely to have _____ returns. Question 32 options: 1) lower, higher 2) lower, lower 3) higher, higher 4) higher, lower
You are the CFO of a profitable firm that is financially constrained. The stock market is currently going through a boom phase (assume this is a bubble). From what you have learned in this course, you know that the rational decision would be to issue new shares and use this income to pursue positive NPV projects. Before you make this decision, what is the most important variable that you would examine Assume you have information on all these variables. Select one: O a. Market Q O b. Fundamental Q O c. Elasticity of price demand for common shares O d. Cash Savings
Assume that the tax on dividends and the tax on capital gains is the same. All else equal, what would a prudent investor prefer? A. More information is needed. B. The prudent investor would prefer dividends—a dollar today is always worth more than a dollar to be received in the future. C. The prudent investor would be indifferent between receiving dividends or capital gains. D. The prudent investor would prefer capital gains—the capital gain tax liability can be deferred until gains are realized.
Your corporation needs additional capital to fund an expansion. Discuss the advantages and disadvantages of raising capital through the issuance of stock. Would debt be a better option? Why or why not?
4. Classify each of the following factors/cases based on whether they favor a low dividend policy or high dividend policy? (explain why) A. The tax on capital gains is deferred until the gain is realized. B. Few, if any, positive net present value projects are available to a firm. C. A majority of the shareholders have a low tax rate. D. A majority of the shareholders have better investment opportunities than the firm. E The presence of an agency conflict with the company's senior managers.
Question 2 A private limited company is seeking to raise a large amount of finance to invest in a new project. Which of the following options would you recommend? A. Selling shares directly to the public B. Negotiating an overdraft C. An interest bearing bank loan D. All the above
True or False: Private equity investors can easily sell or exchange their investments for cash anytime? True or False: Private equity firms only invest in small companies? True or False: Everything else stays the same. If a company's gross debt amount increases, its equity value decreases?
Corporate finance is concerned with (i) what long-term investments the firm should choose, (in) how the firm should raise funds for selected investments, and (ili) how short-term assets should be managed and financed. option 1: True option 2: False

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