Floating-rate debt is advantageous to investors because the interest rate moves up if market rates rise. Since floating-rate debt shifts price risk to companies, it offers no advantages to corporate issuers. True False
Q: Although the major benefit of debt financing is easy to observethe tax shield-many of the indirect…
A: Debt financing is the borrowed money that a person pays back the money with interest with a…
Q: hich of the following statements regarding the private debt market is FALSE? A) Private debt has…
A: The private debt market is the market in which owned by the owners, households and businessman. Bank…
Q: How do corporate borrowers use interest rate or cross-currency swaps to reduce reduce the costs of…
A: Optimum Capital Structure Occasionally, some financial restructuring is required by a company to…
Q: Which of the following statements is most correct? Why?* choices: a. The expected return on…
A: Bonds are referred as the security type, where an issuer used to owe the debt holder and also are…
Q: 4. If a higher ROE is desirable, why don't companies take on large amounts of debt? a. Additional…
A: The return on equity is used to evaluate the profit earned on an investment considering the profit…
Q: Long-term financing may be riskier than short-term financing during periods of tight credit because…
A: Long term financing refers to financing in which the maturity of the debt or the loan or the…
Q: Floatation or issuance cost of new securities are present in an imperfect economy. True False
A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…
Q: Please answer the following question according to the figure below. 1. How does increase in debt…
A: Debt and equity financing Each source of financing has its own advantages and disadvantages. For…
Q: Which of the following is NOT related to (or contributes to) business risk? Remember that a…
A: Business risk refers to a company's or organization's vulnerability to factors that could reduce…
Q: Critique this statement: “The use of debt financing lowers the net income of the firm, and hence…
A: The statement has two parts:The use of debt financing lowers the net income of the firm,Hence debt…
Q: How does a profitable capital market help reduce the prices of goods and services?
A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…
Q: Which of the following is a disadvantage of using bonds? a. Bondholders do not participate in…
A: Introduction : In simple words, there are several sources from which a company can raise capital to…
Q: p18 Which of the following is true of debt financing? Firms whose sales are very stable are more…
A: true debt financing indicates use of additional cash through debt or reduction of debt due to its…
Q: Which of the following is an advantage of debt financing? a. Excessive debt increases the risk of…
A: Due to high debt, share price decreases because of the higher risk equity holders face. Share price…
Q: Which of the following statements is FALSE? A. Equity cost of capital is normally higher then…
A: The Modigliani Miller propositions: In their paper on Capital Structure, Modigliani and Miller (MM)…
Q: Which of the following statements is CORRECT? a. One disadvantage of zero coupon bonds is that the…
A: by the above-given statements, Income bonds must pay interest only if the company earns the…
Q: Which of the following would increase the likelihood that a company would increase its debt ratio,…
A: Cetris Perbius Means Other things remaining constant, if the company is considering to increase the…
Q: s would typically prefer to disclose
A: because any debt is a bad thing in the capital structure of a business.
Q: If a company chooses the fair value option, a decrease in the fair value of its bonds because of the…
A: The fair value option is the alternative for a business to record its financial instruments at their…
Q: Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a…
A: Bond financing refers To the borrowing for the long term that is used by the state and local…
Q: What would happen to the risk premium on corporate bonds if brokerage commissions were increased in…
A: A bond is an instrument that represents the loan that is made by the investor to the company and…
Q: Most nonfinancial firms would never hold as much of their assets in safe liquid securities as banks…
A: Banks helps the investor's by borrowing money from them and giving them periodic interest and helps…
Q: The disadvantages of debt to the corporation include all but which of the following? Group of…
A: The company can raise funds through different sources of finance such as debt funds, equity funds,…
Q: A company will prefer debt in its capital structure, if (tick the most appropriate alternative) (a)…
A: Any capital structure is composed of debt and equity. Both have their own pros and cons which affect…
Q: Adverse selection is a problem associated with equity and debt contracts arising from the lender's…
A: Issuing the financial instruments will increase the capital , as well as the capital of the company.…
Q: It can be true that for one industry, a certain level of debt is acceptable, but for another, it can…
A: The level of acceptable debt varies from one industry to another and while for one industry a given…
Q: If the market value of a firm becomes less than its book value, it becomes an attractive takeover…
A: When the market value of a company is less than its book value, it may mean that investors have lost…
Q: ntion that in the absence of the tax advantages of debt the use of gearing can increase the expected…
A: The use of debt is very common in organization because the debt had the tax advantages due to which…
Q: Does a steady low-volatilty enviroment, increase, decrease, or have no effect on the credit spread…
A: If we closely observe we can find out that there are number of participants in a financial market.…
Q: Companies
A: INTRODUCTION: COMPANIES RAISE THEIR FUNDS BY WAY OF TWO SOURCES: OWNED FUNDS(issuing shares ).…
Q: Which of the following statements about Floating-Rate Debt is NOT true? A) Floating-rate debt has…
A: A floating rate note is a debt instrument that allows companies to keep the interest rate variable…
Q: Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than…
A: Debt financing is a cheaper source of finance than equity financing because tax saving on interest.…
Q: Which one of the following is NOT an implication of market efficiency for corporate finance?
A: Since you have posted multiple independent questions in the same request, we will solve the first…
Q: Debt overhang occurs when: 1. A company is so indebted that it has little incentive to invest as…
A: Meaning of debt overhang: It is a situation in which a high amount of debt is there in the company…
Q: The difference between equity financing and debt financing is that Group of answer choices A. equity…
A: Debt and equity are different financing sources. Company raises the capital using these sources.…
Q: There are advantages and disadvantages of debt financing in contrast to equity financing. Which of…
A: Debt financing has less risk as compared to equity financing, which is why the cost of debt is less…
Q: If a company has very weak cash flows, an investor would prefer to be at the ____ of the waterfall…
A: Cash flows are the inflows and outflows of cash that are received and paid by an organization in a…
Q: Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For…
A: Reclassifying of investment means changing the class of investments. The investment is changed from…
Q: Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a…
A: Definition: Long-term debt: Long-term debt refers to the obligations of a firm that are due and has…
Q: Which is true of equity financing? It has no fixed maturity date It provides a tax shield It…
A: Equity financing is method of raising finance by issue of equity shares. It is one form of source of…
Q: Ross’s Lipstick Company’s long-term debt agreements make certain demands on the business. For…
A:
True
False
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- There are advantages and disadvantages of debt financing in contrast to equity financing. Which of the following is less likely to represent an advantage of debt financing? a. The cost of debt should be lower than the cost of equity for most companies due to the lower risk to the lender and the tax deductibility of interest b. The repayment of debt capital may affect the liquidity of the company c. If the return on assets exceeds the cost of debt, then this will result in a higher return on shareholders’ funds as compared to the return on assets d. The increase in borrowings will not normally affect the voting control of the current shareholders as compared to the issue of shares e. Fixed interest rate loans will result in the variability in the market value of such loans over time which will normally be less than the variability in the value of the equity of the companyOne reason interest rate swaps exist is that: interest rates are lower because it is easy to fool investors about the credit worthiness of a company with interest rate swaps. industrial companies are not permitted to issue fixed-rate debt. commercial banks are not permitted to issue floating-rate debt. interest rate swaps allow interest rate risk to be separated from credit risk.Agency costs of debt arise any time there is a conflict between lender interests and borrower interests. Assuming that agency costs of debt are high at a company relative to the rest of the market, other things being equal, which of the following would you expect to observe with the company's borrowing? It will be able to borrow less than other companies. AND It will have to pay lower interest rates on its loans than otherwise companies. It will have to pay lower interest rates on its loans than otherwise similar companies. It will have to pay lower interest rates on its loans than otherwise similar companies. AND It will face more "covenants" than otherwise similar companies. NONE. it will face more "covenants" than otherwise similar companies. It will be able to borrow less than other companies. It will be able to borrow less than other companies. It will face more "covenants" than otherwise similar companies.
- Which of the following statements about Floating-Rate Debt is NOT true? A) Floating-rate debt has a stated interest rate that fluctuates in tandem with some interest rate benchmark (for instance, LIBOR). B)Floating-rate bonds allow companies to keep reported book value and fair value at the same level that protects investors from losses. C)The issuing company benefits from floating-rate debt when market interest rates increase. D)Floating-rate debt is issued at par.Which of the following statements is CORRECT? a. One disadvantage of zero coupon bonds is that the issuing firm cannot realize any tax savings from the use of debt until the bonds mature. b. Income bonds must pay interest only if the company earns the interest. Thus, these securities cannot bankrupt a company prior to their maturity, and this makes them safer to the issuing corporation than "regular" bonds. c. Once a firm declares bankruptcy, it must be liquidated by the trustee, who uses the proceeds to pay bondholders, unpaid wages, taxes, and legal fees. d. Other things held constant, a callable bond should have a lower yield to maturity than a noncallable bond. e. A firm with a sinking fund that gives it the choice of calling the required bonds at par or buying the bonds in the open market would generally choose the open market purchase if the coupon rate exceeded the going interest rate.You are working for a mid-sized company that is looking to estimate its cost of debt. The company has never had an issuance in the bond market. What would be the best proxy to estimate its cost of debt? A. Cost of its bank debt B. Cost of its equity C. Cost of debt from companies of a similar market capitalization D. Cost of debt in the corporate bond market
- The disadvantages of debt to the corporation include all but which of the following? Group of answer choices A. Indenture agreements may place burdensome restrictions on the firm. B. Interest and principal payments must be met regardless of performance results. C. Debt may have to be paid back with "cheaper" dollars because of inflation. D. Too much debt may depress the firm's stock price.2. If a bank wants to avoid volatility in its regulatory capital, which investment classification would be the most desirable, and which investment classification would be the least desirable? Does your answer differ depending on whether the bank is large or small? In other words, do large and small banks differ on how they can categorize unrealized gains/losses on AFS debt?1. When the Fed purchases treasuries to supply market liquidity, does that increase, decrease, or have no effect on the credit spread for a corporate bond?
- Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.Which is true of equity financing? It has no fixed maturity date It provides a tax shield It offers creditors no cushion against losses Struggling companies still need to pay dividendsWhich of the following statements is most correct? Why?* choices: a. The expected return on corporate bonds will generally exceed the yield to maturity. b. Firms that are in financial distress are forced to declare bankruptcy. c. All else equal, senior debt will generally have a lower yield to maturity than subordinated debt. d. Statements a and c are correct. e. None of the statements above is correct.
