Your firm faces relatively lower carrying costs and relatively higher shortage costs. Additionally, your firm takes on a higher amount of long-term financing and invests the excess into marketable securities. Which of the following statements is true? With regard to the level of investment in current assets, your firm has a restrictive policy. With regard to the financing of the current assets, your firm has a flexible policy. With regard to both the level of investment in current assets and the financing of the current assets, your firm has a relatively flexible policy. With regard to the level of investment in current assets, your firm has a flexible policy. With regard to the financing of the current assets, your firm has a restrictive policy. With regard to both the level of investment in current assets and the financing of the current assets, your firm has a relatively restrictive policy.

Your firm faces relatively lower carrying costs and relatively higher shortage costs. Additionally, your firm takes on a higher amount of long-term financing and invests the excess into marketable securities. Which of the following statements is true? With regard to the level of investment in current assets, your firm has a restrictive policy. With regard to the financing of the current assets, your firm has a flexible policy. With regard to both the level of investment in current assets and the financing of the current assets, your firm has a relatively flexible policy. With regard to the level of investment in current assets, your firm has a flexible policy. With regard to the financing of the current assets, your firm has a restrictive policy. With regard to both the level of investment in current assets and the financing of the current assets, your firm has a relatively restrictive policy.

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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Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
(a)Define short sales and discuss its merits. (b) Explains the significance of ethics in the investment and trading world. (c) Discuss the Differences among types of investors. (d) Which risks may be diversified and how?
Funding risk is the risk that a firm will not be able to meet its short-term financial obligations when due. Select one: True False
Which of these is a main characteristic of debt capital?(a) Investors in debt participate in the ownership of the firm.(b) Investors in debt are paid interest.(c) Debt is more risky for the investor and less risky for the firm.(d) If dividends are not paid, this can lead to foreclosure, legal proceeding and financial distress.
A common feature of an LBO structure is a. the minimal use of debt financing. b. a cash sweep, which is a covenant requiring all excess cash be used to retire debt.c. projected rates of return that explicitly and precisely account for the risks associated with these investments.d. its limited use in only providing seed capital to start-up firms.e. none of the above.
If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: Cost of equity from new stock = r, D1 +8 Po(1-F) The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.90 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, Po, is $25.00. If it needs to issue…
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________ .
Modigliani and Miller suggest that, under certain assumptions, financing decisions do not matter in that they do not affect the value of the firm. They define when these assumptions hold as perfect markets. Which of the following are assumptions that they claim must hold for financing decisions to be irrelevant? Group of answer choices There are no taxes There are no transaction costs The firm has a fixed investment policy The sun must rise in the North and set in the South
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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