Under which condition an external equity financing can be advantageous? Group of answer choices When a firm wishes to raise additional capital by selling a portion of the existing owners' stock while maintaining control of the firm When a firm's capital structure contains more equity than debt All of the above When common stock becomes less risky to the firm than fixed-income securitie

Under which condition an external equity financing can be advantageous? Group of answer choices When a firm wishes to raise additional capital by selling a portion of the existing owners' stock while maintaining control of the firm When a firm's capital structure contains more equity than debt All of the above When common stock becomes less risky to the firm than fixed-income securitie

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 2QE

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Suppose a firm maintains its preferred debt-equity and pays dividends only after meeting its investment needs, what type of dividend policy is being referred to? A. Stable B. Hybrid C. Compromise D. Residual
The stockholders’ claim in a levered firm can beviewed as a call option; stockholders have the optionto purchase the firm’s assets by paying off its debt.What incentives does this provide to stockholdersand managers in choosing investment projects?
Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mix
Given asymmetric information between investors and managers, )How would investors interpret firm’s decision to finance through debt? )How would investors interpret firm’s decision to finance through equity? )How would investors interpret firm’s decision to buy back its equity? )Given the signaling theory above, what is the implication on firm’s financing preference (hint: pecking order hypothesis)?
o. Compare and contrast different methods of capital reconstruction, such as share buybacks, debt-for- equity swaps, and the cancellation of share capital. When might a company choose one method over another, and what are the financial implications of each?
o. Compare and contrast different methods of capital reconstruction, such as share buybacks, debt - for - equity swaps, and the cancellation of share capital. When might a company choose one method over another, and what are the financial implications of each?
Which one of the following statements related to the Security Market Line approach to equity valuation is correct? Assume the firm includes debt in its capital structure. Group of answer choices This model considers a firm's rate of growth. The model will never produce the same cost of equity as the dividend growth model. The model is dependent upon a reliable estimate of the market risk premium. This approach generally produces a cost of equity that equals the firm's overall cost of capital. The model applies only to non-dividend-paying firms.
Which of the following is an appropriate goal for the firm? Select one: a. All of these b. In secondary markets, outstanding shares of stock are bought and sold among investors. c. An active secondary market causes firms to sell their new debt or equity issues at a higher cost of funds. d. A secondary market allows investors to share their risk and return e. For an investor, the function of secondary markets is to provide profitability for the shares of securities they own.
How does a cost-efficient capital market help reduce the prices of goods and services? Describe the different ways in which capital can be transferred from suppliers of capital to those who are demanding capital. Is an initial public offering an example of a primary or a secondary market transaction? Indicate whether the following instruments are examples of money market or capital market securities. a. US Treasury bills b. Long-term corporate bonds c. Common stocks d. Preferred stocks e. Dealer commercial paper Briefly explain what is meant by the term efficiency continuum.
In calculating the value of a firm's equity which of the following is incorrect? Multiple Choice O The market value of equity should be used as opposed to the book value The value of equity represents the value of the firm less the value of debt A premium is usually paid for equity with higher liquidity. D A discount is usually given for controlling interest in a company.
How does a semi-strong market affect a company’s capital structure? Discuss the possible exposures and impact. Provide examples to justify your reasoning.
How should (a) signaling and (b) the clienteleeffect be taken into account by a firm as it considers its dividend decision? Do signaling and clientele effects make it easier or harder to determineif investors prefer high or low payout ratios? Dothese factors influence the desirability of a stabledistribution policy versus one that is flexible andthus varies with the company’s cash flows andinvestment opportunities?