PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 18, Problem 23PS
Financial slack* True or false?
- a. Financial slack means having cash in the bank or ready access to the debt markets.
- b. Financial slack is most valuable to firms with few investment opportunities and poor prospects.
- c. Managers with excessive financial slack may be tempted to spend it on poor investments.
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Students have asked these similar questions
Match the correct type of bank risk with the appropriate associated statement.
1.The possibility that a borrower could make late, reduced, or no payments on their loans.
2.Bank management may make poor strategic decisions that result in lower profits for the bank.
3.Hackers could break into bank customer accounts.
4.Inability to access capital markets and higher borrowing costs could hurt the bank's ability for funding opportunities.
5.Changes in the yield curve could increase short-term rates and/or decrease long-term rates, resulting in a lower net interest margin for the bank.
6.General economic conditions can affect banks in the U.S.
Liquidity Risk
7.Differences in the timing and drivers of rate changes reflecting the maturity and/or repricing of assets and liabilities could put the bank's earnings at risk.
Credit Risk
Business Operations Risk
Market risk
Interstate Rate Risk
Liquidity Risk
Interest rate risk is of concern to a firm's financial officer, because (Select the best choice below.)
A.
it is more difficult to issue securities when interest rates are low.
B.
changes in interest rates affect the expected return of financial instruments.
C.
federal government taxation increases as interest rates rise, reducing the cash available to the firm.
D.
inflationary periods may reduce the real earnings of the firm.
E.
B and D
nvestment banks may lose ________ if new securities issues are ________.
future business; undersubscribed
large amounts of money; oversubscribed
future business; oversubscribed
large amounts of money; fully subscribed
Chapter 18 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 18 - Prob. 1PSCh. 18 - Tax shields Compute the present value of interest...Ch. 18 - Tax shields Here are book and market value balance...Ch. 18 - Tax shields Look back at the Johnson Johnson...Ch. 18 - Prob. 5PSCh. 18 - Tax shields The firm cant use interest tax shields...Ch. 18 - Prob. 7PSCh. 18 - Tax shields The trouble with MMs argument is that...Ch. 18 - Bankruptcy costs On February 29, 2019, when PDQ...Ch. 18 - Financial distress This question tests your...
Ch. 18 - Prob. 12PSCh. 18 - Agency costs Let us go back to Circular Files...Ch. 18 - Agency costs The Salad Oil Storage (SOS) Company...Ch. 18 - Agency costs The possible payoffs from Ms....Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 20PSCh. 18 - Pecking-order theory Fill in the blanks: According...Ch. 18 - Financial slack For what kinds of companies is...Ch. 18 - Financial slack True or false? a. Financial slack...Ch. 18 - Debt ratios Rajan and Zingales identified four...Ch. 18 - Leverage targets Some corporations debtequity...Ch. 18 - Prob. 26PSCh. 18 - Trade-off theory The trade-off theory relies on...
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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
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- The "mark to market" rule (a) Created an unrealistic picture of the financial health of some banks. (b) Required banks to recognize in their balance sheet decrease in value of assets as their price declined in the market, instead of waiting until the asset was sold. (c) Caused the net worth of some banks to decline significantly and making it impossible for the banks to make loans. (d) All the above. (e) Only (b) and (c) are true.arrow_forwardOff-balance-sheet (OBS) banking business contributes to a significant growth in bank income, but can also result in heightened risk exposure. Give examples of two (2) OBS products to illustrate why OBS activities may involve more risk than the traditional balance sheet business.arrow_forwardWhich of the following is most consistent with using debt to reduce agency costs or conflicts? Question 11 options: Increasing debt reduces a firm’s business risk The interest paid on debt reduces taxable income and income taxes The interest paid on debt reduces cash that management of a firm might otherwise waste or use poorly The issuance of debt helps firms increase their credit ratingarrow_forward
- Balance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity. For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets. A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.arrow_forwardWhich of the following is true? Group of answer choices All of the other answers provided are false Solvency refers to how able the company is to pay its liabilities that are due in the next quarter Liquidity refers to how quickly the company can covert its assets into cash A company with greater financial flexiblity would be less able to survive during bad timesarrow_forwardTRUE OR FALSE 1. Short-term financial policies that are flexible with regard to current assets includes keeping large balance of short-term debt. 2. Costs that fall with increases in the level of investment in current assets are called shortage costs. 3. The firm further increases the effective interest rate earned by the bank on the committed line of credit.arrow_forward
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