31 The CFO of a large corporation you have just inherited takes pride in her corporate finance skills. She asks your opinion on whether it would better (all else equal) to see the price of your corporation's bonds to. Multiple Choice increase, indicating that bond investors view your firm as less risky. decrease, indicating that bond investors view your firm as more willing to take risks. decrease, indicating that bond investors view your firm as less risky. increase, indicating that bond investors view your firm as more willing to take risks.

31 The CFO of a large corporation you have just inherited takes pride in her corporate finance skills. She asks your opinion on whether it would better (all else equal) to see the price of your corporation's bonds to. Multiple Choice increase, indicating that bond investors view your firm as less risky. decrease, indicating that bond investors view your firm as more willing to take risks. decrease, indicating that bond investors view your firm as less risky. increase, indicating that bond investors view your firm as more willing to take risks.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 9Q

See similar textbooks

Similar questions

What is the value of Ls stock for volatilities between 0.20 and 0.95? What incentives might the manager of L have if she understands this relationship? What might debtholders do in response?
True or false 1.The free cash flow to equity will always be higher than the net income of the firm, because depreciation is added back. 2.Susan is expecting the economy to worsen over the next few years, perhaps falling into a recession. Investing in the construction industry should be part of Susan’s strategy. 3. Preference shares combine the fixed income features of bonds with the same price appreciation potential as ordinary shares. 4. Identify any one behavioural bias in each of the following statements: a) Mary writes the following letter to an investment columnist: “I invested quite a bit of money (R26 000) in Intel stock. Of course, like most technological stocks, it has been struggling, and on paper I am in trouble. Do you think it will ever reach the R80 that I paid for it? I really hate to cash it in for such a big loss and I don’t trust it enough to buy it at the low price (R8) it is now trading for. I feel like the company shows promise, but I am certainly not astute in…
1. Cost of money Everyone uses money, and it is important to understand what factors affect the cost of money. Consider the following scenario: A friend comes to you and asks you to invest in his business instead of investing in Treasury bonds. You think he has a good business model, so you tell him you are willing to invest as long as the expected return on the investment is at least four times the return you would have received on the Treasury bonds. Determine which of these fundamental factors is affecting the cost of money in the scenario described: Risk Inflation Time preferences for consumption
Discuss whether the director's view (Miss Kay) that issuing traded bonds will decrease the weighted average cost of capital ATC Bhd and thereby increase the value of the company. Discussion should consider from the viewpoint of: i. Traditional ii. Modigliani & Miller ii. Market imperfections iv. Pecking order theory
A bank that seeks to increase its risk-adjusted capital ratio has a number of options at its disposal including: Issue new equity, such as through a rights issue to existing shareholders, an equity offering on the open market, or by placing a bloc of shares with an outside investor. Increase retained earnings by reducing the share of its profit it pays out in dividends. Reduce its risk-weighted assets by replacing riskier loans with safer ones or with government securities. Chose 1 option from below:Only I is correct. Only II is correct. I and II are correct. Only III is correct. I, II and III are correct. Thanks!
Discuss whether the director’s view (Miss Kay) that issuing traded bonds will decrease the weighted average cost of capital ATC Bhd and thereby increase the value of the company. Discussion should consider from the viewpoint of:i. Traditionalii. Modigliani & Milleriii. Market imperfectionsiv. Pecking order theory
A. Stockholders can transfer wealth from bondholders. As a finance analyst, you are required to explain how the following actions by stockholders transfer wealth from bondholders. Again, in what ways can the bondholders protect themselves against these actions?i. An increase in dividendsii. A leveraged buyoutiii. Acquiring a risky business B. Why might the two (2) disciplinary mechanisms of shareholders against managers not work? C. Union Pacific Rail road reported net income of $770million after interest expenses of $320 million in a recent financial year. The corporate tax rate was 36%. It reported depreciation of $960 million in that year, and capital spending of $1.2billion. The firm also had $4billion in debt outstanding on the books, was rated AA (carrying a yield to maturity of 8%), and was trading at par (up from $3.8 billion at the end of the previous year). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book…
In Business Finance, we observe a shareholder's required return on a common stock investment because O it is used to predict the cashflows from a capital expansion O it is inversely related to the same firm's bond price O it is an estimate of the cost of equity funding for a corporation O it is the cost of borrowing for the firm K
Please say whether each of the following statements is true or false. For each statement, give reasons in one or two sentences.1. In a Modigliani and Miller world with corporate taxes, the cost of capital is decreasing in the debt to equity ratio.2. In a Modigliani and Miller world with no taxes, dividends should be paid out only if the firm has free cash flows.3. Covenants on corporate bonds are a way in which bondholders protect their investment from moral hazard.4. Most of the gains generated by private equity investments tend to go to the shareholders of the target company.5. In an incentive compatible contract, the share of profits given to the agent is decreasing in the strength of the conflict of interest between the principal and the agent.6. Keeping capital structure constant, a company’s cost of capital is increasing in the beta of its shares.7. According to the Trade-off theory, firms with uncertain cash flows can afford to carry more debt.8. In a Modigliani-Miller world…
Assume that Mr James wants to invest his savings in less risky financial instruments with a minimum rate of return per annum . Therefore he invested his savings in some financial assets in which returns will be guarantee even if the company will be in losses also . The financial instruments purchased by Mr James is known as : a . Debentures b . Equity shares Oc . Preference shares d . Partnership shares
Assess the regulatory environment faced by brokerages and investment banking firms. Do you consider this environment to be highly regulated, moderately regulated or unregulated. Justify your response.Compare and contrast credit risk with liquidity risk.Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors ? Why ?An investment bank pays $ 23.00 for 4 million shares of JC Co., and then resells them for $ 25 per share. How much money does JC receive? What is the profit to the investment bank ?An investment bank pays $ 20.50 per share for 3 million shares of X. It then sells these shares to the public for $ 22.50 per share. How much money does X receive ? What is the profit to the investment bank ? What is the stock price of X ?A mutual fund owns 500 shares of X currently trading at $ 12, and 300 shares of Y, currently trading at $ 24. The fund has 900 shares outstanding.What is…
We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might: Make shareholders as wealthy as possible by investing in real assets. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Choose high- or low-risk assets to match shareholders' risk preferences. Help balance shareholders' checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?