Long-term financing may be riskier than short-term financing during periods of tight credit because the firm may not be able to rollover (renew) its debt. True
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Long-term financing may be riskier than short-term financing during periods of tight credit because the firm may not be able to rollover (renew) its debt.
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- It is often argued that debt becomes a more attractive mode of financing than equity as interest rates decline and a less attractive mode when interest rate increases. Is this true? Explain.Critique this statement: “The use of debt financing lowers the net income of the firm, and hence debt financing should be used only as a last resort.”Which of the following statements is false? A. Credit spreads narrow during an economic recession. B. Credit spreads tend to narrow as broker-dealers become more willing to provide capital. C. Less creditworthy issuers are subject to high market liquidity risk. D. None of the above.
- Which of the following statements is false? A. Banks have high levels of liquidity assets and stable funding since the financial crisis. B. Compared with bonds with short-term duration, bonds with long-term duration have uncertainty regarding future creditworthiness. C. Expected loss can decrease with an increase in a bond’s recovery rate. D. Macaulay duration is calculated as modified duration divided by one plus the bond’s yield to maturity.Long-term debt financing can have a possibility of more funding but is more risky in terms of long-term payment of loans. Group of answer choices True FalseFloating-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
- What is a limitation common to both the current and quick ratio? * Debtors may not pay on time. Inventories may not be truly liquid. Accounts receivable may not be truly liquid. Prepaid expenses are potential sources of cash. Marketable securities are not liquid.Adverse selection is a problem associated with equity and debt contracts arising from the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. the lender's inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. the borrower's lack of incentive to seek a loan for highly risky investments. 4. none of the choices.Financial slack is the amount of unused access to debt markets or bank financing. Which theory of capital structure would place the highest value on maintaining financial slack for a firm that is not in financial distress? Question 10 options: a) Trade-off theory b) Debt financing as a managerial constraint c) Pecking order theory d) Modigliani & Miller irrelevance theory
- The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explainFunding risk is the risk that a firm will not be able to meet its short-term financial obligations when due. Select one: True FalsePlease explain it why choosing option correct and wrong # Which of the following best describes interest rate risk? The risk that credit ratings will change, affecting the value of assets and liabilities The risk that banks will not be able to meet their liquidity requirements None of the above The risk that interest rates will rise or fall, affecting the value of assets and liabilities
