Answered: What method would be the least risky to…

Business

Finance

What method would be the least risky to raise capital if it has a less-than-favorable credit rating?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 16QTD

See similar textbooks

Related questions

Q: Why might a large corporation want to raise long-term capital through a borrowing money from…

A: Raising money from financial institutions increases the likelihood of finding investors who share…

Q: Which of the following statements is FALSE? As debt increases, the risk associated with bankruptcy…

A: Source of raising capital include: Equity financing Debt financing Loans from financial…

Q: Kidman corporation is trying to raise capital. What method would be the least risky to raise capital…

A: The credit ratings provide information about the creditworthiness of a company or an individual.

Q: What is meant by the term ‘financial distress’. If we assume that financial distress exists, explain…

A: Financial obligations are liabilities of an entity towards outsiders such as suppliers, vendors,…

Q: What were the direct and indirect costs of the LIBOR scandal for Barclays? Are these costs only a…

A: The LIBOR Scandal: The LIBOR Scandal came to light in 2012 when Barclays and other banks admitted…

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: When ever debt is issued , it is used to repurchase the outstanding shares because of which Share…

Q: What are the risks and rewards of investing in the stock market as compared to the bond market? b.…

A: Because you have posted multiple questions, we will answer only the first question and for the…

Q: ROA and ROE are considered as ther performance evaluation tools for banks. Do they always move in…

A: ROA is defined as the (return on assets) it helps to determine the profitability of the company It…

Q: Diol Athletics is trying to determine its optimal capital structure, which now consists of only debt…

A: Formula of Levered Beta is as follows: Levered Beta= Unlevered Beta×1+1- Tax Rate×DebtEquity

Q: In the case of a perfect capital market, according to Modigliani and Miller Proposition I and II,…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: . If a publicly traded company has a large numberof undiversified investors, along with some whoare…

A: A publicly traded company or organizations or public companies that have sold their shares on a…

Q: Why might it be rational for a small firm that does not have access to the capital markets to use…

A: Payback period is simply the average period by which the initial investment can be recovered. It…

Q: Which of the following is not a financing decision? A Should the firm borrow money from a…

A: Financing decisions- It is concerned with the quantum of funds to be raised from the various…

Q: Discuss the factors that affect the WACC. Also discuss how these factors may differ somewhat from…

A: WACC: Weighted average cost of capital refers to the rate of the cost that a company or business…

Q: The weighted average cost of capital provides the rate of return such that All capital providers…

A: To invest in new project or investment, firm require new funds which will be arranged by different…

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: Net Income = (EBIT -Interest )*(1-taxrate)

Q: Given asymmetric information between investors and managers, )How would investors interpret firm’s…

A: The question is based on the concept of Corporate finance

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: The WACC is the sum of the cost of different sources of funds weighted by their share in the total…

Q: The pecking order theory of capital structure suggests that managers will choose to utilise retained…

A: Pecking Order theory is an important theory in finance. It tells that the for funding purposes…

Q: There are two significant benefits of obtaining a loan over investing capital: Select one: a. banks…

A: Loan is defined as the funds, which used to be given to some other party in an exchange regarding…

Q: If the financial market is frictionless, the cost of equity is higher than the cost of debt in all…

A: A financial market is a place where people may exchange low-cost financial securities and…

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: Cost of equity: It is the amount paid by a company to its shareholders for taking the risk of…

Q: When valuing private companies, we use public companies as comparables to gain insights into how the…

A: Valuation of private companies is not easy simply because of the fact that limited information are…

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: In financing their operations, corporations have the options of raising capital by issuing stock or…

A: corporations have the option of raising the capital by issuing - stocks (equity capital) - debt…

Q: ROA and ROE are considered as the performance evaluation tools for banks. Do they always move in the…

A: Return on equity (ROE) and return on assets (ROA) are two of the most critical metrics to determine…

Q: Does it matter if the firm raises capital through debt or equity? Why or Why not?

A: Debt involves borrowing money that is to be repaid including the interest. Whereas equity involves…

Q: Which of the following statement are true? Direct transfer of capital involves the aid of…

A: The answer for the multiple choice question and relevant explanation are presented hereunder : There…

Q: In rising interest rate environment, what will be the impact on highly leveraged companies? Evaluate…

A: When a business, asset, or investment is described as "highly leveraged," it suggests that there is…

Q: Why might it be rational for a small firm that does not have access to the capital markets touse the…

A: The payback period in one of the capital budgeting technique and it calculates the time period for…

Q: What are the differences between raising capital from a financial institution and raising finances…

A: Financial institution and Financial markets: Financial institutions can be defined as any company…

Q: Companies that face large investments they cannot finance internally through the retention of…

A: Floatation costs are the expenses incurred to raise capital such as, brokerage fee, underwriting…

Q: Interest rate risk is of concern to a firm's financial officer, because (Select the best choice…

A: Interest Rate is the cost(k) of debt. It is an amount paid by the borrower to the lender on money…

Q: Koffman Corporation is trying to raise capital. What method would be the least risky to raise…

A: When a firm has a less-than-favorable credit rating, it means that the cost of debt will be high due…

Q: articipate in the ownership of the firm. (b) Investors in debt are paid interest. (c) Debt is more…

A: Debt capital consists of the securities that represent lenders or financial creditors to the firm.…

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: a) EPS = Net Income / No. of equity shares

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: cost of equity = risk free rate + levered beta * market risk premium Levered Beta =Unlevered Beta *…

Q: North Star is trying to determine its optimal capital structure, which now consists of only common…

A: For calculating interest expenses for each capital structure , we need to find out total debt…

Q: Why would a company that is a good bond investment not be a good equity investment?

A: Bond Investment: Governments and corporations utilize bonds, also known as fixed income instruments,…

Q: When a firm has businesses with different risk profiles, different investments can have different…

A: Business used to have various risk profiles on which the risk profile are majorly gets evaluated…

Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

Koffman Corporation is trying to raise capital. What method would be the least risky to raise capital if it has a less-than-favorable credit rating?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Kidman corporation is trying to raise capital. What method would be the least risky to raise capital if it has a less-than-favorable credit rating?
Why might it be rational for a small firm that does not have access to the capital markets touse the payback method rather than the NPV method?
Koffman Corporation is trying to raise capital. What method would be the least risky to raise capital if it has a less-than-favorable credit rating? A. Stock issuance, since a credit rating won’t negatively affect Koffman’s ability to sell stock. B. With low credit, Koffman doesn't have any options for raising capital. C. Bond issuance, since nobody wants to buy shares of a company with a less-than-perfect credit rating. D. Bond issuance, since additional debt can provide the company with more leverage.
What were the direct and indirect costs of the LIBOR scandal for Barclays? Are these costs only a part of the reality for investment banks and a necessary risk to produce the profits required by their shareholders ?
Why might it be rational for a small firm that does not have access to the capital markets to use the payback method rather than the NPV method?NOTE: Describe In 5 Line Donot Give Breif Answer
Which of the following statements is correct? a. As Modigliani and Miller made clear in their original work, capital structure does not matter in perfect capital markets. Thus, if capital structure does matter, then it must stem from a market imperfection. b. Because corporations pay taxes on their profits after interest payments are deducted, interest expenses increase the amount of corporate tax firms must pay. c. To determine the loss due the leverage for the value of the firm, we must compute the present value of the stream of future interest tax shields the firm will receive minus the stream of future dividends. d. By increasing the amount paid to debt holders through interest payments, the amount of the pre-tax cash flows that must be paid as taxes increases. e. In general, the gain to lenders from the tax deductibility of interest payments is referred to as the interest tax benefit.
Which of the following statements is FALSE? A. Equity cost of capital is normally higher then cost of debt, thus cost of debt can be examined in isolation. B. No matter if a firm is unlevered or levered, there is no difference in the market value of the firms total securities and market value of the firm’s assets. C. Introducing debt increases the risk even though it may be cheap and consequently increases firms equity cost of capital. D. Cost of Capital of equity and Leverage can be explicitly explained by first proposition that Modigliani and Miller introduced.
Which of the following is most correct about the cost of capital? The cost of debt reflects the interest rates on debt capital before taking into account the tax effects. Cost of capital is affected by the required rates of return of each of the source of capital, regardless of the capital structure. The capital asset pricing model is the most widely used model to estimate the cost of common equity. To minimize the cost of capital, firms should borrow more than their capacity because increasing the lower cost of debt yields the lowest cost of capital, thus, enhances shareholder value.
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?
Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy... Banks’ managers do not want to mmaintain much capital because they do not bear fully the costs of their failure. In addition to this reason others claim that banks’ managers do not want to maintain higher levels of capital because higher levels of capital attract greater scrutiny from bank regulators. Comment on this claim. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits. Identify and discuss the second demand on the bank for liquidity.
Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group of answer choices The use of more debt is expected to result in an increase in the firmʹs cost of capital when everything is considered More debt will increase the firmʹs riskiness All of them are valid reasons for a firm to use less debt than might be available The use of more debt is expected to result in a lower price/earnings ratio
ROA and ROE are considered as ther performance evaluation tools for banks. Do they always move in the same direction? How does an increase in capital affect them?