Since stock represents ownership in the company, equity investing is less risky than debt investing, and as such we can expect lower returns. t/f?
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Since stock represents ownership in the company, equity investing is less risky than debt investing, and as such we can expect lower returns.
t/f?
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- Why holding too much capital may result in the lower the return to shareholders. Explain with some examples to make it easier to understand.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 more risky.The efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?
- True or False Please answer both. 1. High cash flow is generally associated with a higher share price whereas higher risk tends to result in a lower share price. 2. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability.Which of the following statements is correct? A. The optimal dividend policy is the one that satisfies management, not shareholders. B. The use of debt financing has no effect on earnings per share (EPS) or stock price. C. Stock price is dependent on the projected EPS and the use of debt, but not on the timing of the earnings stream. D. The riskiness of projected EPS can impact the firm's value. E. Dlvidend policy is one aspect of the firm's financial policy that is determined solely by the shareholders. Reset SelectionThe fixed return on borrowed capital is more risky than profits paid to equity investors in a firm.a. The above statement is trueb. The above statement is falsec. It depends on the interest periodd. The statement lacks data
- Fountain Corporation's economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm's only activity and that the firm will close one year from today. The company is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability .50 .50 Bad Good Low-Volatility Project Payoff $ 5,400 6,550 High-Volatility Project Payoff $ 4,800 7,150 a. What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. What is the expected value of the company's equity if the…When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity. Group of answer choices: True FalseWhen you invest your money, you want to avoid risk at all cost. Which type of investment would you MOST likely choose? O a) small-company stocks b) large-company stocks c) corporate bonds 0 d) Treasury bills