The concept of adverse selection helps to explain Group of answer choices A) why indirect finance is more important than direct finance as a source of business finance. B) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. C) why direct finance is more important than indirect finance as a source of business finance. D) only A and B of the above. E) only A and C of the above.

The concept of adverse selection helps to explain Group of answer choices A) why indirect finance is more important than direct finance as a source of business finance. B) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. C) why direct finance is more important than indirect finance as a source of business finance. D) only A and B of the above. E) only A and C of the above.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 6QTD

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Which of the statement is TRUE in financial decision making? A. When the economy is growing of proceeding towards recovery, the finance manager should not be eager to avail of investment opportunities. B. When the economy is facing a slump, the finance manager should proceed with opportunities. C. When the economy is facing a slump, the finance manager should proceed with care.
Thoroughly discuss why the asymmetric information is an obstacle to the direct finance? Give examples of moral hazard and adverse selection problems and possible solutions.
Discuss how the free-rider problem aggravates adverse selection and moral hazard problems in financial markets.
Which of the following explains why relative valuation is preferred over intrinsic valuation? a. It requires the collection of data regarding similar firms, thus this method is time-consuming.b.It reflects historical costs that are grounded with facts and not based on assumptions c. Individuals with minimal accounting and finance knowledge can apply this method. d.It uses assumptions that are more cash-flow based.
1.Which of the following is not something that you would consider when evaluating the optimal capital structure? d. Security Rating. b. EBIT-EPS Analysis. a. Agency Costs. f. Neither the second nor fourth answer is correct. c. Taxes. e. All of the above are considered when determining the optimal capital structure. 2.Which of the following is an argument for the relevance of dividends? b. Reduction of uncertainty. a. Informational content. c. Some investors' preference for current income. d. All of the above. 3.All of the following are true of stock splits EXCEPT: a. Market price per share is reduced after the split. d. Proportional ownership is unchanged. b. The number of outstanding shares is increased. c. Retained earnings are changed.
What are the disadvantages of the financial intermediaries and the negative ways they can impact the economy?
Some accountants believe that financial statement analysis is of little benefit as it contradicts the findings of capital markets research. Discuss the findings of capital markets research and its implications for financial statement analysis.
I. Explain the tradeoff between the costs of having too much liquidity on the one hand and financial distress and insolvency on the other hand. II. What gives rise to, or causes, each. III. Give an example explaining both.
Which of the statement is TRUE in Managements’ Attitude as part of factor influencing the decision making? A. A conservative finance manager will attach greater importance to profitability rather than to liquidity. On the other hand, an aggressive financial manager will stress the latter, and financial decisions will be taken accordingly. B. An aggressive finance manager will attach greater importance to liquidity rather than to profitability. On the other hand, a conservative financial manager will stress the latter, and financial decisions will be taken accordingly. C. A conservative finance manager will attach greater importance to liquidity rather than to profitability. On the other hand, an aggressive financial manager will stress the latter, and financial decisions will be taken accordingly
What is a difference in motivations for accounting methods between a favorable profit picture and a strong liquidity position? A. Investors are primarily influenced by a favorable profit picture, while creditors are mostly influenced by a strong liquidity position. B. Creditors are primarily influenced by a favorable profit picture, while investors are mostly influenced by a strong liquidity position. C. Investors are primarily influenced by a favorable profit picture, while politicians are mostly influenced by a strong liquidity position. D. Politicians are primarily influenced by a favorable profit picture, while creditors are mostly influenced by a strong liquidity position.
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