Crowdfunding is not a form of raising fund for company’s capital budgets since they are less known than equity or debt funding. True False It is easier for bonds to be traded over the counter in comparison to shares or stocks. True False Higher bond price is exhibited when there is a lower interest rate. True False

Crowdfunding is not a form of raising fund for company’s capital budgets since they are less known than equity or debt funding. True False It is easier for bonds to be traded over the counter in comparison to shares or stocks. True False Higher bond price is exhibited when there is a lower interest rate. True False

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 16MCQ

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For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense (Wrong Choice) C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
For firms that have debt on their balance sheets, interest expense is commonly seen as an expense on the firm's income statement. In capital budgeting, however, we ignore interest expense. Why? Group of answer choices A) Because the cost of debt is already included in the WACC, and including interest expense in the calculation of cash flows would then be "double counting" it. B) Capital budgeting is done from the perspective of the common stockholders, so it ignores interest expense C) Like depreciation, interest expense is a "non-cash" expense D) Because firms ignore the pleas of banks and bondholders to pay their interest. This is why Silicon Valley Bank failed.
Companies obtain their funds from two sources: debt and equity. The providers of these funds are protected in different ways. Debtholders have specific contracts with the company, and if the company defaults they have recourse ahead of shareholders.Shareholders are the bearers of residual risk and in return for the uncertainty this creates, equity finance is more expensive than debtfinance- reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.Question:If the shareholders’ position is not protected by a contract-unlike the provider of debt- how is it in fact made viable? Discuss.
Most companies choose to issue equity rather than bonds to raise fundsoverseas. Briefly discuss FOUR (4) factors why they prefer to do so.
Compare raising cash funds in the capital market (selling new shares of stock) versus the bond market (debt financing), and what is best and why.
The company wishes to mobilize short term funds through various sources, Which of the following is not an appropriate source for the company? Select one: A. Equity Shares B. Commercial Paper C. Treasury Bills D. Commercial Bills
One drawback of ETFs is that investors: a) are forced to pay higher cost and fee as compared to mutual funds. b) are not able to diversify their investments. C) must pay commission when making a purchase. d) can only buy or sell shares after the major stock exchanges are closed.
Why do most new ventures typically have an easier time raising funds with equity as opposed to debt financing? Group of answer choices a.This is false, since most new ventures have an easier time getting debt financing. b.Because debt investors are focused on upside return. c.Equity investors are willing to take the risk for unlimited upside, and debt investors see limited collateral value. d.Equity investors are focused on collateral and conservative return.
Which of the following statements about sinking fund is NOT true? A Sinking fund provision facilitates the orderly retirement of the bond issue. B A company would prefer to use sinking fund to call bond if interest rate is below the coupon rate. C A company would use sinking fund to call bond if interest rate is well above coupon rate. D It is a good strategy for a firm to use its sinking fund to call bond if bond sells at a big premium.
Which of the following is not one of the things that manager can do to reduce the capital ratio (increase the equity multiplier) if he or she finds that the bank has a capital surplus?O Buying back some of the bank's stock.O Paying out higher dividends to stockholders.O Selling more CDs and use the funds to invest in loans or securities.O Selling some mortgage-backed securities and use the proceeds to reduce liabilities.
Which of the following statements is CORRECT? a. Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time. b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. c. Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued. d. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. e. A sinking fund provision makes a bond more risky to investors at the time of issuance.
A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion? Sell secured bonds. Sell callable bonds. Sell convertible bonds. Sell unsecured bonds.