International Edition---principles Of Corporate Finance, 12th Edition
12th Edition
ISBN: 9781259692178
Author: Richard Brealey And Stewart Myers
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 14, Problem 1PS
Sources of funds True or false?
- a. Net stock issues by U.S. nonfinancial corporations in most years are small but positive.
- b. Most capital investment by U.S. companies is funded by
retained earnings and reinvesteddepreciation. - c. Debt ratios in the United States are lower than in most other developed economies.
Expert Solution & Answer
Summary Introduction
To discuss: Whether the give statements are true or false.
Explanation of Solution
a.
The net stock issues by the nonfinancial companies in country U in majority of the years are neither small nor positive. Thus, the net equity issues are negative, it means that the repurchases of shares are larger than the share issues.
Hence, the given statement is false.
b.
Majority of the capital investments by country U corporations are funded by the depreciation that are invested again and by the retained earnings.
Hence, the given statement is true.
c.
In country U the debt ratios are lower when compared to other developed economies.
Hence, the given statement is true.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Which of the following is NOT usually associated with “financial risk”?
a. A rise in the country’s interest rates.
b. A new government has been voted in.
c. Fluctuation in a country’s currency.
d. Difficulty in accessing funds from banks.
discuss the rationale behind the introduction of negative interest rate policies across economies worldwide.
discuss the effect of increasing the amount paid upfront when corporations make capital purchases focusing on benefits and drawbacks
discuss the significance of including the factor of inflation in corporate finance calculation
Which would indicate that hyperinflation exists?
a. Sales on credit are at lower prices than cash sales.
b. Inflation is approaching or exceeds 20% per year.
c. Monetary items do not increase in value.
d. People prefer to keep their wealth in nonmonetary assets or a stable foreign currency.
Chapter 14 Solutions
International Edition---principles Of Corporate Finance, 12th Edition
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
- If the interest rate rises, the a. quantity of loanable funds demanded by firms decreases b. quantity of loanable funds demanded by government increases c. quantity of loanable funds demanded by government decreases d. quantity of loanable funds demanded by firms increasesarrow_forwardWhich of the following can be classified under Business Finance? Select one: a. Australian government reducing individual tax thresholds b. George's decision to purchase 20 000 units of Afterpay for himself c. Qantas' capital raising following COVID lockdowns d. Jerome Powell and the Fed applying quantitative easing to buy government bonds to support businessesarrow_forwardQuestion:2 , Which of the following factors are likely to decrease the weighted average cost of capital for a multinational corporation compared to a domestic firm? Check all that apply: Exposure to country risk International diversification Exposure to exchange rate risk Access to international capital markets Large size Submit.............arrow_forward
- Capital and the production of goods and services. In many developing nations, limited financial markets, instruments, and financial institutions, as well as poorly defined legal systems, may make it costlier to raise capital and may lower the retum on savings or investments. They also help to facilitate the intemational flow of funds between countries. Indian financial market consists of two major segments: (a) Money Market; and (b) Capital Market. While the money market deals in short-term credit, the capital market handles the medium term and long-term credit. Q7. (Case Study Problem) Financial sector plays a crucial role in the accumulation of The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These…arrow_forwardWhich of the following is most true? The nominal rate of a government long-term security can be used as a proxy for the real risk free rate. A direct relationship is exhibited between the investors’ willingness to supply funds and the interest rates of securities. Finance managers tend to favor more on long-term financing if the nation’s Gross Domestic Product is expected to contract. Maturity risk premium is always included in the nominal rate of any corporate security since corporations are perceived as less riskier than government.arrow_forwardCredit entries in the U.S. balance of payments A. result from foreign sales of US. goods and services, goodwill, financial claims, and real assets B. result from U.S. purchases of foreign goods and services, goodwill, financial claims, and real assets give rise to the demand for dollars. give rise to the supply of dollars. C. D. The key strengths of the public corporation is/are their capacity to allow efficient risk sharing among many investors their capacity to raise large amounts of funds at relatively low cost their capacity to consolidate decision-makingarrow_forward
- Which of the following statements is NOT CORRECT? A. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing B. A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year C. The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. D. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.arrow_forwardInvestment banks' activities in recent years have gone well beyond their "traditional" role of underwriting stocks and bonds. Investment banks (remember, most of them are now bank holding companies and thus are able to borrow funds from the Federal Reserve and get taxpayer-funded bailouts) are involved in a wide variety of "complimentary financial activities." What are the possible implications for financial markets as investment bans continue to expand their activities? Is this an efficient way for investment banks to diversify their activities? Or is it an attempt by investment banks to corner markets that could result in the next global financial crisis?arrow_forwardWhich of the following is correct when the company is deciding if it will undertake an additional funds needed? a. When he company is operating at full capacity, fixed assets are excluded in the computation of the amount of external funds needed b. Additions to retained earnings varies upon on the profit margin ratio and retention ratio of the firm c. Growth rate is irrelevant because it seem to be fluctuating every year d. Additional financing needed only pertains to debt financingarrow_forward
- If a central bank decreases interest rates, then gradually: a. the country's gross domestic product is likely to decrease. b. foreign exchange rate is likely to appreciate. c. demand for exported goods and services is likely to increase. d. flows of investment funds into the country are likely to decrease.arrow_forwardA U.S. company has the following choices of financial markets in which to raise capital. Which one will it most often prefer? a.foreign bond b.domestic banks c.foreign bank d.a new issue of common stockarrow_forwardSuppose that a new government is elected and it changes the law applying to firms to:• Allow dividend payments to be tax deductible• Stop interest expense on debt from being tax deductibleHolding other factors constant, and assuming that firms seek to maintain an optimal capital structure in accordance with trade-off theory, what would you expect to happen to the debt ratio of a firm with both equity and debt in its capital structure?a. An increase in the debt ratiob. A decrease in the debt ratioc. The debt ratio would be unchangedd. The debt ratio would doublee. None of the above or it is not possible to sayarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Monetary Policy explained; Author: Sim Institute;https://www.youtube.com/watch?v=IMkLAP_aj3I;License: Standard Youtube License