Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 1, Problem 20PS
Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate
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The company cost of capital
depends on current profits and
cashflows, which measures what
investors require from the company:
A) True
B) False
Corporate debt can be dependable
or risky, which depends on the value
and the risk of the firm's assets.
Bondholders can take steps to
eliminate default risk:
A) true
B) False
Financial risk refers to the:
Multiple Choice
possibility that interest rates will increase.
risk of owning equity securities.
the risk that the share price may not reflect all known information
general business risk of the firm.
risk faced by equity holders of firms with debt.
Which of the following statements is true?
O The secondary market is important because its existence increases the amount of capital that publicly traded
firms can raise when they issue securities.
O The secondary market is unimportant for publicly traded firms.
The secondary market is important because it is where publicly traded firms raise capital.
Chapter 1 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 1 - Prob. 1PSCh. 1 - Prob. 2PSCh. 1 - Prob. 3PSCh. 1 - Prob. 4PSCh. 1 - Prob. 5PSCh. 1 - Prob. 6PSCh. 1 - For each transaction, identify the real and/or...Ch. 1 - Prob. 8PSCh. 1 - Lanni Products is u start-.up computer software...Ch. 1 - Reconsider Lanni Products from Problem 9. (LO 1-2)...
Ch. 1 - Prob. 11PSCh. 1 - Examine the balance sheet of commercial banks in...Ch. 1 - Prob. 13PSCh. 1 - Prob. 14PSCh. 1 - Prob. 15PSCh. 1 - Prob. 16PSCh. 1 - Why would you expect securitization o take place...Ch. 1 - Prob. 18PSCh. 1 - Give an examp1e of three financial intermediaries,...Ch. 1 - Firms raise capital from investors by issuing...Ch. 1 - The average rate of return on investments in large...Ch. 1 - Prob. 22PSCh. 1 - Prob. 1WMCh. 1 - Prob. 2WMCh. 1 - Prob. 3WMCh. 1 - Prob. 4WM
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- If the stock market is efficient, why do companies manage their earnings? O To avoid violating debt covenants. O To receive bonuses based on reported earnings. O Because companies do not believe the Efficient Market Hypothesis. O All of the above.arrow_forwardGenerally, managers of corporations prefer internally generated cash to finance their capital expenditures because I) they can avoid the discipline of financial markets; II) the costs of issuing new securities are high; III) the announcement of a new equity issue is usually bad news for investors Multiple Choice I, II, and III I only II and III only Il onlyarrow_forwardExplain how repurchases can (1) help stockholders limit taxes and (2) help firmschange their capital structures.arrow_forward
- Financial institutions, even though they often own large proportions of a firm's securities, play no role in monitoring publicly traded firms. Question 7 options: True Falsearrow_forwardWhich of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. Compensating managers with stock options. b. Abolishing the Security and Exchange Commission. c. The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. d. Financing risky projects with additional debt. e. The threat of hostile takeovers.arrow_forwardWhich of the following is correct a. In a leveraged recapitalization, a firm uses its excess cash to buyback shares b. In an LBO, a firm borrows and repurchases its shares thereby reducng the number of shares outstanding. c. In a leveraged recapitalization, a change of ownership occurs as the firm is sold d. In an LBO, debt is a major component of the financing and a change of control occurs. e. In an LBO, managers use excess cash to repurchase sharesarrow_forward
- Which of the following would not be an appropriate reason for a firm to repurchase its stock: As an investment if management believes the market has undervalued the stock price. In order to have sufficient shares to cover employee stock programs. Solely to boost Earnings Per Share. Both A and B.arrow_forwardA company will prefer debt in its capital structure, if (tick the most appropriate alternative) (a) It wants to dilute control (b) Stock market conditions are bullish (c) Tax rates are high (d) It has already used its debt potential to the full.arrow_forwardWhich one of the following action will not lead to reducing financial risk? Issuing bonus shares Issuing equity shares Issuing preferred stock Reducing dividendarrow_forward
- A corporation might have treasury stock listed on their financials for all the following reasons except: A. they wish to control the market price B. they wish to be a majority stockholder C. they wish to limit dividend payments D. they wish to avoid takeoverarrow_forward4arrow_forwardA firm is planning to borrow money to make an equity repurchase to increase its stock price. It is basing its analysis on the fact that there will be fewer shares outstanding after the repurchases, and higher earnings per share. There are no taxes. a. Will earnings per share always increase after such an action? Explain.b. Will the higher earnings per share always translate into a higher stock price? Explain.c. Under what conditions will such a transaction lead to a higher price?arrow_forward
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