QUESTION 14When cost of debt goes up, cap rates typicallygo down, high cost of borrowing means one can make more moneyO stay the same, the cost of debt does not affect market cap ratesO go up, investers demand a higher return to justify the cost of debtO can go up or down, depending on the commercial real estate sector sector

in the capital structure. Suppose without considering the tax, take $ 100 is the value of total…

Answered: QUESTION 14 When cost of debt goes up,…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 2P

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5 The Financial Sector - End of Chapter Problem a. How does maturity transformation impact long-term investment spending? Maturity transformation decreases long-term investment by limiting the use of short-term deposits to short-term loans only. increases long-term investment by making it possible to extend long-term loans even when no savers are willing to make a long-term loan. increases long-term investment by convincing savers to promise they will not withdraw their money for the length of the loan. increases long-term investment by having investors take out a series of short-term loans successively, repaying each previous loan, until the long-term project is completed.
9. Interest rates and decisions A.Which of the following best explains why a firm that needs to borrow money would borrow at long-term rates when short-terms rates are lower than long-term rates? The use of short-term financing over long-term financing for a long-term project will increase the risk of the firm. The firm’s interest payments will be the same whether it uses short-term or long-term financing, so it is essentially indifferent to which type of financing it uses. A firm will only borrow at short-term rates when the yield curve is downward-sloping. B. Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Scenario Impact on Yield Cost of Borrowing Money from Bond Markets ABC Real…
QUESTION 6 Which of the following statements is true? O A. Companies look for investments with payback periods that are larger than their maximum accepted payback period O B. An investment with a profatibility index less than 1 is profitable and desirable O C.A projected is accepted if the IRR is less than the cost of capital O D. None of the above are true
QUESTION 6 Which of the following statements is true? O A. Companies look for investments with payback periods that are larger than their maximum accepted payback period O B. An investment with a profatibility index less than 1 is profitable and desirable OC.A projected is accepted if the IRR is less than the cost of capital O D. None of the above are true
Question 6 Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted? O Payback O Profitability index O Net present value O Internal rate of return O Discounted payback
Question 6 The clientele argument in dividend theory implies that: O The stock of low-payout firms will be held by investors seeking capital gains. The dividend payout should be set equal to the industry average. Investors are indifferent between dividends and capital gains. Firms should pay out dividends only after accepting all capital budgeting projects with positive NPVs.
p14 More profitable firms have less debt, which supports the trade-off theory. True False
Increasing a country's risk-free rate could _______ the cost of equity to an MNC in that country; increasing a country's risk-free rate could ________ the cost of debt to an MNC in that country, assuming that the other things held constant. A. increases; not affect B. not affect; increase C. increase; increase D. not affect; not affect
Question 11 Which of the following is a distinctive feature of a credit-driven asset-price bubble? The affected assets are financial stocks or bonds issued by companies in the financial sector. a weakening of lending standards an increase in the number and variety of market participants asset-price increases that are "justified" by projections of future value
INTEREST RATE DETER MINAT ION Maria Juarez is a professional tennis player, and your firm manages her money. She has asked you to give her information about what determines the level of various interest rates. Your boss has prepared some questions for you to consider.a. What are the four most fundamental factors that affect the cost of money, or the general level of interest rates, in the economy?b. What is the real risk-free rate of interest (r*) and the nominal risk-free rate (rRF)? How are these two rates measured?c. Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP). Which of these premiums is included in determining the interest rate on (1)short-term U.S. Treasury securities, (2) long-term U.S. Treasury securities, (3) short-term corporatesecurities, and (4) long-term corporate securities? Explain how the premiums would vary over timeand among the different securities listed.d. What is the term structure of…
Question 13 According to MM propositions, at what debt-equity ratio the cost of equity should be the lowest? Zero if there is no tax and indefinitely large if a non-zero tax rate is applied. O Infinitely large Zero if there is no tax and 1 if a non-zero tax rate is applied. Zero
9. Interest rates and decisions Suppose that a firm is facing an upward-sloping yield curve and needs to borrow money to invest in production. Does this mean that the firm should consider borrowing only at short-term rates? No, the firm needs to take the volatility of short-term rates into account. Yes, using short-term financing will give the firm the lowest possible interest rate over the life of the project. No, an upward-sloping yield curve means that the firm will get a lower interest rate if it uses long-term financing. Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Scenario Impact on Yield Cost of Borrowing Money from Bond Markets ABC Real Estate is a commercial real estate firm…

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