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You are the controller of a firm whose CEO believes that debt should always be used to finance long-term expenditures because interest is tax deductible. List and describe other benefits to debt financing. Also, list and describe risks to using debt.
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- Select all that is true about the role of financial managers and the types of financial decisions they make. Select one or more: a. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets. b. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm. c. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake. Od. Size and timing of cash flows is unimportant in a capital budgeting decision. e. Capital Budgeting function involves planning and determining the firm's short term investments. Of. Determining the appropriate level of inventory is a working capital management function. ZA do W X LThe managers of a firm wish to expand the firm's operations and are trying to determine the amount of debt financing the firm should obtain versus the amount of equity financing that should be raised. The managers have asked you to explain the effects that both of these forms of financing would have on the cash flows of the firm. Write a short response to this request.This term is often used by various industries to determine the amount of risk an individual presents, an industry indicator of how an individual handles their finances. Capital Debt to equity ratio Capacity Worthiness Credit
- Select all that is true about the role of financial managers and the types of financial decisions they make. a. The optimal financial management strategy of a financial manager is to reduce the overall risk level of the firm.b. The duties of the financial manager includes determining the capital structure and which projects the firm should undertake.c. Capital structure describes the mix of short-term liabilities a firm uses to finance its short-term assets.d. Capital Budgeting function involves planning and determining the firm’s short term investments.e. Determining the appropriate level of inventory is a working capital management function.f. Size and timing of cash flows is unimportant in a capital budgeting decision.In finance, the term risk management involves identifying the potential risks the organization may face in the future, analyze the impact of the risk and implement measures so that either is absolved or its adverse impact is minimized. discuss how risks can be avoided in financial institutions?Why does a Financial Manager need to choose which source of financing a company should use? What do they need to consider in making this decision?
- Indicate whether the following statements is true or false. Provide the relevant explanations. In the presence of corporate taxes, a company would prefer to raise debt only when the benefits of the tax shield fully offset the cost of debt. (Explain your reasoning – in your explanation, provide a numerical example supporting your answer.)Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.Below you have the three types of financial management decisions. Match each type of decision to a business transaction that would be relevant. Capital budgeting A. Deciding whether to issue new equity and use the proceeds to retire outstanding debt Capital structure B. Deciding whether to expand a manufacturing plant Working capital management C. Modifying the firm's credit collection policy with its customers
- Do you agree with each of the following statements? Explain. •EBITDA makes companies with asset-heavy balance sheets look healthier than they may actually be.•EBITDA portrays a company’s debt service ability— but only some types of debt.•EBITDA isn’t a determinant of cash flow at all.A distinguishing characteristic of an investment center is that revenues are generated by selling and buying stocks and bonds. interest revenue is the major source of revenues. it is a responsibility center which only generates revenues. the profitability of the center is related to the funds invested in the center.Which of the following is a disadvantage of long-term debt as a means of company financing? Group of answer choices Debtholders have preferential status in the event of a company being wound up. Tax relief is available on interest payments. Debt is often quicker to arrange compared to equity. The amount and timing of interest payments is predictable, making budgeting easier.