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.

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.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 8MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

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Which statement is most correct? * A. Since debt financing raises the firm’s financial risk, increasing debt ratio will increase WACC. B. Since debt financing is cheaper than equity financing, increasing debt ratio will reduce WACC. C. Increasing a firm’s debt ratio will typically reduce the marginal costs of both debt and equity financing; however, it still may raise the firm’s WACC. D. Statements a and c are correct. E. None of the above
Describe clearly how theories from behavioural finance can justify the following abnormal phenomena of investment: (1) Investors exhibit tendency to overpay for assets with poor average return but a potential to deliver a huge payoff, such as penny stocks or corporate bonds of financially distressed companies. (2) Investors exhibit tendency to sell winning stocks too early but hold losing stocks for too long
Given asymmetric information between investors and managers, )How would investors interpret firm’s decision to finance through debt? )How would investors interpret firm’s decision to finance through equity? )How would investors interpret firm’s decision to buy back its equity? )Given the signaling theory above, what is the implication on firm’s financing preference (hint: pecking order hypothesis)?
If you know that your firm is facing relatively poor prospects but needs new capital, and you know that investors do not have this information, signaling theory would predict that you would Group of answer choices Convey your inside information to investors using the media to eliminate the information asymmetry. Issue debt to maintain the returns of equity holders. Postpone going into capital markets until your firm's prospects improve. Be indifferent between issuing debt and equity. Issue equity to share the burden of decreased equity returns between old and new shareholders.
Which one of the following statements is correct if the pecking order theory holds?a. Firms with the highest debt ratios can be expected to have the lowest profits owing to the lesser availability of internal financeb. Firms will be keen to undertake equity issues as this signals to investors that managers believe the firm is undervaluedc. Firms will raise funds via equity issues in preference to debt issuesd. Firms will raise funds via external finance in preference to internal financee. None of the above
The DISADVANTAGES of equity finance are KELEMAHAN kewangan ekuiti i. Entrepreneur does not have total control of the company. /Usahawan tidak mempunyai kawalan menyeluruh syarikat ii. Equity Investors do not always agree to the plans of the business/ Pelabur Ekuiti tidak selalu bersetuju dengan rancangan perniagaan iii. Arranging equity financing is much more complex /Mengatur pembiayaan ekuiti adalah lebih kompleks iv. Entrepreneur does not have to repay the money invested/injected into the company/ Usahawan tidak perlu membayar balik wang yang dilaburkan/disuntik ke dalam syarikat Select one: A. iii and iv /iii dan iv B. i,ii and iii./ i,ii dan iii C. ii, iii and iv /ii, iii dan iv D. All above/ Semua di atas
In the conflicts between equity holders and bond holders, 1).Why would equity investors want to forego good project with positive NPV (“debt overhang”) and rather take risky projects with negative NPV? (“risk shifting”) 2).What is an example of “asset stripping” from equity holders in case of high financial distress?
Which statement is incorrect related to financial intermediaries (institutions)? * They are firms that specialize in financial intermediation - a process of borrowing funds from SSUs and lending such funds to the DSUs. The main objective of financial intermediaries is to convert savings from SSUs into investments. They are the biggest investors in equity securities in the PSE They offer the highest returns and lowest risks when compared to alternative investments available to SSUs. none of the above
Private equity investing differs from public investing in which of the following ways? a. Private equity investors make illiquid investments that cannot be sold because of either a lack of an organized market or investment restrictions.b. Private equity investors are active investors.c. Private equity investments are made for a finite period of time.d. Private equity investments are risky and illiquid and thus require high returns.e. All of the above.
Which of the below statements does the MM Proposition I predict? A. In a perfect market, the value of a firm is independent of its capital structure B.In a perfect market, the discount rate depends on the capital structure C.In a perfect market, the value of a firm decreases in leverage D.In a perfect market, the NPY of investments depends on the existing debt/equity mix
A disadvantage of equity financing Group of answer choices Both of the choices given Equity financing can give more troubles in securing payback of funds Equity financing can result to give enormous control to shareholders
1. Which of the following statements are true?a. The value of any investment is based on the cash flows it is expected to generate in the future.b. Investors are not generally risk averse.c. Uncertain cash flows are preferred to certain cash flows.d. All of the above are true.e. None of the above are true. 2. A basic knowledge of finance will help you with your personal investments by helping you understanda. how to accurately predict changes in the short-term interest rates.b. how to determine the optimal dividend policy for each firm.c. how to determine which technology is most likely to be accepted by consumers.d. how to review companies and industries to determine their prospects for future growth and therisk inherent in those companies and industries.e. how to predict the growth in sales for the firm. 3. Which of the following events would make it more likely that a company would choose to call itsoutstanding callable bonds?a.A reduction in market interest rates.b.The company's…