There are two significant benefits of obtaining a loan over investing capital: Select one: a. banks are dependable providers of venture funding, and interest charges are tax deductible b. the money does not have to be repaid, and lenders usually take an active interest in their creditors C. no ownership of the company is given up or surrendered, and interest payments are tax deductible d. the investment does not have to be repaid, and no ownership of the company is surrendered

There are two significant benefits of obtaining a loan over investing capital: Select one: a. banks are dependable providers of venture funding, and interest charges are tax deductible b. the money does not have to be repaid, and lenders usually take an active interest in their creditors C. no ownership of the company is given up or surrendered, and interest payments are tax deductible d. the investment does not have to be repaid, and no ownership of the company is surrendered

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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we know that depreciation is linked to the net cash flows of the company's investments. In fact, any increase in depreciation amounts leads to an increase in net cash flows because: a. reduces investment-related taxesb. increases investment-related taxesc. increases the tax rate on investment gainsd. reduces the discount rate of investments
13. Which of the following is an advantage of a company using equity rather than debt to finance a project? ___________ Dividends do not need to be paid. ___________ Interest is tax deductible, whereas dividends paid are not. ___________ Dividends require less cash than does paying interest on debt. ___________ No taxation occurs, similar to bonds.
Which of the following is incorrect about debt financing? A. Debt financing always generates excess returns which benefits equity investors b. One benefit of debt financing is that interest on most debt is fixed c. One benefit of debt financing is that interest is a tax deductible expense d. It increases financial leverage
1. Cost of money Everyone uses money, and it is important to understand what factors affect the cost of money. Consider the following scenario: A friend comes to you and asks you to invest in his business instead of investing in Treasury bonds. You think he has a good business model, so you tell him you are willing to invest as long as the expected return on the investment is at least four times the return you would have received on the Treasury bonds. Determine which of these fundamental factors is affecting the cost of money in the scenario described: Risk Inflation Time preferences for consumption
Indicate whether the following statements is true or false. Provide the relevant explanations. In the presence of corporate taxes, a company would prefer to raise debt only when the benefits of the tax shield fully offset the cost of debt. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)
ABC Company funds its new investment project with only internal financing (NO external financing). Should this investment assess at a risk-free rate? Explain Please.
A distinguishing characteristic of an investment center is that revenues are generated by selling and buying stocks and bonds. interest revenue is the major source of revenues. it is a responsibility center which only generates revenues. the profitability of the center is related to the funds invested in the center.
The Miller’s model proved that a firm’s value is unaffected by its capital structure. But their study was based on some assumptions that: _____ There are no personal taxes. There are no corporate taxes. There are no corporate taxes and personal taxes. There are corporate taxes and personal taxes.
Which of the following statement is TRUE? Select one: O a. None of the other options is correct. O b. Losses on real estate loans are first compensated by the investors in commercial paper issued by the financial institution. O c. In a syndicated loan, a group of lenders shares the return, but not the default risk of the loan Od. When a bank gives a secured loan, the bank has first claim on specific assets of the borrower in the event of a default. Oe. When the repayment probability of a loan is equal to zero, the financial institution investing in this loan faces low credit risk.
Which of the following statements is CORRECT? * Assume a corporation has less debt than what is ideal. Increasing the use of debt to reach its optimum capital structure would lower the cost of both debt and equity financing. There is no reason to believe that changes in the personal tax rate will have an effect on firms' capital structure decisions. Assuming everything else is equal, a firm with high business risk is more likely to increase the use of financial leverage than a firm with low business risk. In general, a company with low operating leverage has a small percentage of its total costs in the form of fixed costs. If a company's after-tax cost of equity exceeds its after-tax cost of debt, it can still lower its WACC by using more debt.
1.There are two significant benefits of obtaining a loan over investing capital:a. the money does not have to be repaid, and lenders usually take an active interest in their creditorsb. the investment does not have to be repaid, and no ownership of the company is surrenderedc. no ownership of the company is given up or surrendered, and interest payments are tax deductibled. banks are dependable providers of venture funding, and interest charges are tax deductible2.A _________ aims to improve a good or service's revenue by increasing marketing activities or increasing production ability and performance.a. product line extension strategyb. geographic expansion strategyc. market penetration strategyd. strategic alliance strategy3.Entrepreneurs should be aware of three issues about business growth. What are the issues?a. a business's valuation increases with its growth, a business can grow too fast, and business growth is a top priority of most entrepreneurial firmsb. not all businesses…
Which of the following is not a reason for the issuance of long-term liabilities? Debt financing dilutes ownership interest. Debt may be the only available source of funds. Debt financing may have a lower cost. Debt financing offers an income tax advantage.

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