Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 30, Problem 12PS
Summary Introduction
To discuss: One of the three securities preferred by person X to hold in case of short term investment of firm’s excess cash flow and there is any change in answer depends on firm’s tax rate.
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What are the differences between stocks and bonds in terms of predicted future payments? Which sort of investment is regarded to be riskier (stocks or bonds)? Given your knowledge, which investment (stocks or bonds) do you believe is often referred to as "fixed income"?
Tell whether the following statements describe the
characteristics of stocks or bonds.
e. Issues of a stake of ownership in a company.
f. Investment that generally have higher reward.
g. Debt that is made with an investors for cash exchange for interest.
h. Investors can earn money if the security increases, but they can lose
money if the security decreases.
i. The seller agrees to pay interest on the loan at a fixed rate and
schedule.
How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
Chapter 30 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 30 - Inventory What are the trade-offs involved in the...Ch. 30 - Prob. 2PSCh. 30 - Prob. 3PSCh. 30 - Prob. 4PSCh. 30 - Prob. 5PSCh. 30 - Prob. 6PSCh. 30 - Prob. 7PSCh. 30 - Credit policy How should your willingness to grant...Ch. 30 - Cash management Complete the passage that follows...Ch. 30 - Prob. 10PS
Ch. 30 - Prob. 11PSCh. 30 - Prob. 12PSCh. 30 - Prob. 13PSCh. 30 - Prob. 14PSCh. 30 - Credit terms Phoenix Lambert currently sells its...Ch. 30 - Prob. 16PSCh. 30 - Prob. 17PSCh. 30 - Prob. 18PSCh. 30 - Prob. 19PSCh. 30 - Prob. 20PSCh. 30 - Prob. 21PSCh. 30 - Prob. 22PSCh. 30 - Prob. 23PSCh. 30 - Prob. 24PSCh. 30 - Prob. 25PSCh. 30 - Money-market yields In Section 30-4 we described a...Ch. 30 - Money-market yields Look again at the previous...Ch. 30 - Prob. 29PSCh. 30 - Prob. 30PSCh. 30 - Prob. 31PSCh. 30 - Prob. 33PS
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- 2: Investors invest in Fixed Income securities (i.e., bonds) for the passive income that comes from coupon payments. T/Farrow_forwardShould a firm use debt instruments as a financing option, what are its effects on the firm’s expected return and risk?arrow_forwardWhich of the following are money market instruments? Check all that apply. Common stocks Commercial paper Corporate bonds Treasury bills Preferred stocks A financial instrument whose value is derived from the value of an underlying asset is called a (Speculation, hedge, derivative)arrow_forward
- 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.arrow_forwardIdentify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a higher return with borrowed funds than it pays in interest.arrow_forwardWhat are the payout methods? Select all that apply. Group of answer choices a. Bank loan b. Buyout c. SPAC d. Dividendarrow_forward
- Which of the following facilitates trading of short term corporate bonds in an economy? Select one: A. Capital Market B. All of the given options C. Money Market D. Foreign Exchange Marketarrow_forwardc. Which yield might investors expect to earn on these bonds, and why?arrow_forwardThe required rate of return of an investor is the rate of return that an investor demands to purchase a firm's stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors' point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm's point of view. Indicate in the following table whether each of the statements about WACC and the required rates of return of investors is true or false. Statement True False The amount that an investor is willing to pay for a firm's stock is inversely related to the firm's cost of common equity before flotation costs. The firm's cost of debt is what an investor is willing to pay for the firm's stock before considering flotation costs. The amount that an investor is willing to pay for a firm's bonds is inversely related to the firm's cost of debt without considering the cost of issuing the bonds. The cost of retained earnings is the same as the cost of…arrow_forward
- The cost of capital can be thought of as the rate of return required by investors in the firm's securities. O a. false O b. truearrow_forwardWhat is the expected return of the corporate bond investment?arrow_forwardWhich of the following is NOT a principle of finance? on Select one: a. company advantage O b. portfolio effect O c. Time Value of Money O d. risk-return tradeoff O e. Valuationarrow_forward
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