Which of the following statement are true? Direct transfer of capital involves the aid of investment banks and intermediaries None of the statements are correct Interest rates are likely to decrease when there is an expected increase in inflation
Q: If a bank is exposed to refinancing risk, its profitability is higher if interest rates and if it is…
A: Refinancing risk refers to the risk that a bank's cost of funding (such as the interest rates it…
Q: The change from a straight to a kinked capital allocation line is a result of: reward-to-volatility…
A: The capital allocation line (CAL) represents the possible combinations of risk and return that an…
Q: onsider the following statements: The main lesson to be learned from the Modigliani and Miller…
A: Modigliani and Miller theory of capital structure suggests that the value of firm is irrelevant to…
Q: Which of the following is generally the least expensive source of funding? A) demand deposits B)…
A: Demand deposits refer to funds held in bank accounts that can be withdrawn by the account holder at…
Q: A firm that is increasing its capital structure leverage and increasing profitability will likely…
A: In this question we have four question and we need to select the correct option.
Q: Vhich of the following is NOT a proactive financial strategy related to the OLI paradigm in…
A: OLI stands for Ownership advantages, location advantages and internationalisation advantages.
Q: The primary financial market does not ensure the collection of saved income from holders of…
A: Fresh stocks and bonds are issued to the public for the first time on the primary market. Investors…
Q: Which of the following is not a determinant of investment? a) The efficiency of capital equipment…
A: To increase capital assets, business do investments in property, fixed assets, financial market,…
Q: A company should accept for investment all positive NPV investment alternatives when which of the…
A:
Q: Question 11 Which of the following is a distinctive feature of a credit-driven asset-price bubble?…
A: A credit driven asset - price bubble is a bubble related to inflated prices of assets due to…
Q: Ch. 14. Which one of the following is NOT an implication of market efficiency for corporate finance?…
A: market efficiency for corporate finance has Four implications
Q: True or False: The efficient markets hypothesis holds only if all investors are rational. False…
A: The efficient markets hypothesis holds only if all investors are rational. Answer:- True; Because in…
Q: Which of the following statements is incorrect? Multiple Choice О Purchasing fixed assets through…
A: The objective of the question is to identify the incorrect statement among the given options related…
Q: Which of the following statements is false? A. Credit spreads narrow during an economic…
A: Credit Spread is the difference between the yield of the bonds with similar maturity but having…
Q: Which of the following statement is incorrect about the Peking Order Theory? A.Firms with high…
A: Pecking order theory is a capital structure theory which will advocate for inclusion of higher…
Q: ith a decline in the number of publicly traded companies and the growth of other investment vehicles…
A: The high net worth individuals are those individuals which trade or invest in big amount and having…
Q: Consider the following statements: The Trade-off theory of capital structure cannot explain the…
A: The Trade-off theory of capital structure cannot explain the following: I. Why profitable firms have…
Q: What are the major instruments traded in capital markets?
A: The capital market helps provide a platform where financial instruments are issued by the firms to…
Q: Political stability is a major factor of which one of the following? business risk inflation risk…
A: "Hi, Thanks for the Question. Since you asked multiple questions, we will answer first question for…
Q: The company cost of capital depends on current profits and cashflows, which measures what investors…
A: The corporate cost of capital is reflective of the cost of average projects of the company and…
Q: a) Why is financial leverage understood to be a fair-weather friend?
A: “Since you have asked multiple questions, we will solve the one question for you. If you want any…
Q: If a bank wants to avoid volatility in its regulatory capital, which investment classification would…
A: Answer: If banks want to volatility in regulatory capital, wanting banking organizations are likely…
Q: Which of the following is incorrect about the Pecking Order Theory? A.Firms with high ratios of…
A: Several statements have been provided related to the Pecking Order Theory. We have to find the one…
Q: The pecking order theory of capital structure suggests that managers will choose to utilise retained…
A: Pecking Order theory is an important theory in finance. It tells that the for funding purposes…
Q: Which of the following statements is not correct? Group of answer choices A)Purchasing fixed assets…
A: A)Purchasing fixed assets using cash decreases the current ratio. Purchasing fixed asset using cash…
Q: Most companies invest excess cash in bonds as investments in order to profit long-term from the…
A: Companies invest in securities because they can utilize them to produce cash or resell them to take…
Q: When the yield curve is upward sloping. banks are rewarded for investing more in short-term…
A: Here's why:Bond yields rise with longer maturities according to an upward-sloping yield curve. Put…
Q: Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group…
A: The use of more debt results in an increase in the firm's cost of capital as the proportion of…
Q: The main lesson to be learned from the Modigliani and Miller theory of capital structure assuming…
A: Modigliani – Miller theory has following assumptions- There exist a perfect capital market, and…
Q: A bank that seeks to increase its risk-adjusted capital ratio has a number of options at its…
A: Risk adjusted capital ratio It is total adjusted capital divided by risk weighted assets. It is used…
Q: A declining trend in the capital outlay ratio could be an indicator of deferred replacement of…
A: Capital Outlay Ratio:/The capital outlay ratio is a financial metric used to assess the efficiency…
Q: Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than…
A: Debt financing is a cheaper source of finance than equity financing because tax saving on interest.…
Q: Which one of the following is NOT an implication of market efficiency for corporate finance?
A: Since you have posted multiple independent questions in the same request, we will solve the first…
Q: 2. The Trade-OfT Model A. "The trade-off model of debt financing implies that an increase in the…
A: As you have asked multiple questions, we will solve the first question as per the policy of…
Q: Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value…
A: As per the Modigliani & Miller approach the value of firm remains same at different level of…
Q: Why do companies with small profit margins have a smaller motivation to hedge against currency…
A: Currency movements can have a significant impact on the profitability of companies, particularly…
Q: Bubbles occur when asset prices are high above their fundamental values do not move even as new and…
A: In financial markets, a bubble occurs when the prices of assets, such as stocks, real estate, or…
Q: Which of the following statements is correct? O A. Investors appreciate illiquid assets in their…
A: Liquid and Illiquid Assets: Any asset that can be converted to cash at short notice, and without…
Q: 4. Which of the following is false about the risk-shifting problem? Risk-shifting leads to a…
A: Risk shifting is an agency problem which arises when the company takes more debt thereby increasing…
Q: When a bank holds a lower level of capital, a given dollar level of profits represents a lower…
A: False
Q: A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores…
A: Investment decision: Investment decision can be referred to as capital budgeting. It involves…
Q: Which of the following statements is correct? A firm has a greater likelihood of needing an…
A: The following statement is correct
Q: Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up…
A: Short term financing means fulfil the company’s requirement without using cash. Due to use of short…
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
- Which of the following statements is true? A. The percentage decrease in value when the yield-to-maturity (YTM) increases by a given amount is smaller than the increase in value when the yield-to-maturity (YTM) decreases by the same amount. B. Ratio analysis expands GAP analysis to focus on the sensitivity of bank profits across different interest rate environments. C. The repurchase price is smaller than the selling price and accounts for the interest charged by the buyer, who is lending funds to the seller with the security as collateral. D. The issuers or the firms issuing the bonds are rated on their junior unsecured debt.Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assets2. Which of the following is false about the under-investment problem? The under-investment problem is greatest for all-equity firms Under-investment leads to a reduction in firm value Equity holders in levered firms may not invest in some positive NPV projects due to the transfer of value to debt-holders Risk-shifting leads to a transfer of value from debt-holders to equity holders Under-investment arises when shareholders forgo positive NPV projects if increase in equity value is greater than the amount to be raised
- 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?In many instances, book value, rather than market value, may be used to determine the weighted average cost of capital. This is because of all of the following EXCEPT ____, a. the market prices of the various sources of capital are not easily estimated b. book value is a more accurate value in determining the actual cost of capital c. market values change daily d. many firms have several different issues of debt which may not be publicly heldWhich of the followings proposes that there is a tradeoff between level of borrowing and benefit of tax shields up a point after which financial distress costs start kicking in? CAPM Static capital structure theory M&M Proposition I M&M Proposition II Pecking order theory Floation cost includes Gross spread Direct expenses Indirect expenses Abnormal returns All of above Which one of the followings states that the value of a firm is unrelated to the firm's capital structure? Capital Asset Pricing Model M&M Proposition I M&M Proposition II Law of One Price Efficient Markets Hypothesis
- Which of the following is most correct about the cost of capital? The cost of debt reflects the interest rates on debt capital before taking into account the tax effects. Cost of capital is affected by the required rates of return of each of the source of capital, regardless of the capital structure. The capital asset pricing model is the most widely used model to estimate the cost of common equity. To minimize the cost of capital, firms should borrow more than their capacity because increasing the lower cost of debt yields the lowest cost of capital, thus, enhances shareholder value.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.Interest rate risk is of concern to a firm's financial officer, because (Select the best choice below.) A. it is more difficult to issue securities when interest rates are low. B. changes in interest rates affect the expected return of financial instruments. C. federal government taxation increases as interest rates rise, reducing the cash available to the firm. D. inflationary periods may reduce the real earnings of the firm. E. B and D
- Which of the following is most consistent with using debt to reduce agency costs or conflicts? Question 11 options: Increasing debt reduces a firm’s business risk The interest paid on debt reduces taxable income and income taxes The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly The issuance of debt helps firms increase their credit ratingThe market for capital Firms require capital to invest in productive opportunities. The best firms with the most profitable opportunities can attract capital away from inefficient firms with less profitable opportunities. Investors supply firms with capital at a cost called the interest rate. The interest rate that investors require is determined by several factors, including the availability of production opportunities, the time preference for current consumption, risk, and inflation. Suppose the Federal Reserve (the Fed) decides to tighten credit by contracting the money supply. Use the following graph by moving the black X to show what happens to the equilibrium level of borrowing and the new equilibrium interest rate. Q1. Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates 2. Short-term interest rates Q2. If the inflation rate was 3.20% and the nominal interest rate was 4.20% over the last year, what was the real rate of interest over…How many statements below are correct about the Modigliani-Miller theorem? i. The theorem is not an exact description of reality. ii. The theorem provides a benchmark to understand how the capital structure could affect WACC. iii. The theorem implies that firms have benefited from financing with debt due to a higher required rate of return on debt compared with equity. iv. The value of the firm is not affected by its capital structure under any assumptions.
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)