Crowdfunding is not a form of raising fund for company’s capital budgets since they are less known than equity or debt funding. True False It is easier for bonds to be traded over the counter in comparison to shares or stocks. True False Higher bond price is exhibited when there is a lower interest rate. True False
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- Most companies choose to issue equity rather than bonds to raise fundsoverseas. Briefly discuss FOUR (4) factors why they prefer to do so.Why would a company typically choose to source external financing by issuing bonds rather than stock? A. Bonds are simpler to issue. O B. Bonds have longer maturity dates than stock. O C. Companies pay taxes on the proceeds from stock issues. D. Bonds are a cheaper funding source.Which of the following statements about sinking fund is NOT true? A Sinking fund provision facilitates the orderly retirement of the bond issue. B A company would prefer to use sinking fund to call bond if interest rate is below the coupon rate. C A company would use sinking fund to call bond if interest rate is well above coupon rate. D It is a good strategy for a firm to use its sinking fund to call bond if bond sells at a big premium.
- Case study: Debt vs. Equity Holders Companies obtain their funds from two sources: debt and equity. The providers of these funds are protected in different ways. Debtholders have specific contracts with the company, and if the company defaults they have recourse ahead of shareholders.Shareholders are the bearers of residual risk and in return for the uncertainty this creates, equity finance is more expensive than debtfinance- reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.Question:If the shareholders’ position is not protected by a contract-unlike the provider of debt- how is it in fact made viable? Discuss.Identify the following as either an advantage (A) or a disadvantage (D) of bond financing for a company. A company earns a lower return with borrowed funds than it pays in interest.Why do most new ventures typically have an easier time raising funds with equity as opposed to debt financing? Group of answer choices a.This is false, since most new ventures have an easier time getting debt financing. b.Because debt investors are focused on upside return. c.Equity investors are willing to take the risk for unlimited upside, and debt investors see limited collateral value. d.Equity investors are focused on collateral and conservative return.
- These are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bondsOne drawback of ETFs is that investors: a) are forced to pay higher cost and fee as compared to mutual funds. b) are not able to diversify their investments. C) must pay commission when making a purchase. d) can only buy or sell shares after the major stock exchanges are closed.Shareholders may prefer that managers use a relatively large amount of debt. In contrast, .16 bondholders simply hope to receive their principal back, with interest. therefore, bondholders are than shareholders (a 1) O .more interest in A sinking fund provision trustee call provision convertibility O protective covenants
- Why do at least some investors like to invest in asset-backed securities? Check all that apply: ABS are less risky than bonds with the same rating. It lowers their capital requirements. It gives them control over more assets. ABS often pay higher interest rates than bonds with the same rating.Why do companies often prefer debt financing to other forms of financing for capitalinvestments?a. Actually, they don't prefer debt financing. They usually try to use retainedearnings for capital investments.b. Because bond holders are happy to just break even on their bonds.c. Because the MARR all but guarantees the projects will return yields greater thanthe interest on the loans.d. Because debt interest is tax deductible, reducing significantly the actual cost ofborrowing money for projects.la bonitob at bloky enig (7.8) The interest rate investors expect on a new bond issue can be determined by computing the for the company's Alternatively, it is possible on newly to determine the cost of new debt financing by finding the issued bond with similar (7.9) The firm's overall measure of the cost of capital is the cost of debt is the The dollar cost of equity is overall firm average cost of capital is the cost of equity plus the cost of debt, divided by The dollar (7.10) Interest (is / is not) a tax-deductible expense, and dividends paid to stockholders (are / are not). The payment of interest reduces the firm's taxes by after-tax cost of debt in dollars equals The after-tax cost of debt in percentage terms is WACC = dito The The