How do stock prices affect the value of an investment?
If you own a share of a stock in a company and the risk associated with its business rises you would expect a capital loss Rising stock prices increase investment because firms can raise more money per share of stock sold A $1.00 change in the value of stocks changes consumption and investment by about $.04 When there is a stock market crash
How does a fall in stock prices affect capital gains?
If you own a share of stock in a company and the risk associated with its business falls, you would expect a capital gain Falling stock prices decrease investment because firms can raise less money per share of stock sold A $10,000 change in the value of stocks changes consumption and investment by about $.40
Does a firm’s capital structure affect its free cash flows?
TRUE OR FALSE: As the text indicates, a firm's financial risk has identifiable market risk and diversifiable risk components. TRUE OR FALSE: A firm’s capital structure does not affect its calculated free cash flows, because FCF reflects only operating cash flows.
Does a stock market boom increase wealth and consumption?
A stock market boom increases wealth and thus consumption True A stock market boom increases wealth and this saving False A stock market boom leads to greater investment by firms True The Dow-Jones Industrial Average Index is the broadcast U.S. stock market index False
Why does the Federal Reserve tighten interest rates?
d. The Federal Reserve tightens interest rates in an effort to fight inflation.
Which structure minimizes the cost of equity?
c. The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price.
Does leverage affect equity?
Since a firm's beta coefficient is not affected by its use of financial leverage, leverage does not affect the cost of equity. d. Increasing a company's debt ratio will typically increase the marginal costs of both debt and equity financing. However, this action still may lower the company's WACC.
Does debt affect EBIT?
The amount of debt in its capital structure can under no circumstances affect a company's EBIT and business risk. b. The factors that affect a firm's business risk include industry characteristics and economic conditions, both of which are generally beyond the firm's control.
What happens if you think the price of a share of stock reflects its true value?
If you think the price of a share of stock reflects its true value, but you but it anyways because you expect to the able to sell it later at a higher price, then you are participating in
How does the stock market affect the economy?
the boom in the stock markets affects the economy by. firms investing more as demand grows, consumers consume less with their money tied up in assets, the stock market causes the money supply to rise.
How much did housing wealth increase in the first quarter of 2000?
Between the first quarter of 2000 and the first quarter of 2006, the value of housing wealth. increased by about $13 trillion. Between the second quarter of 2006 and the first quarter of 2009, the value of housing wealth. decreased by about $7 trillion.
What is capital gain?
are a return on the money risked on a share of stock. A capital gain is. when you sell an asset for more than you paid for it. A share of stock. is a fractional ownership of the firm, gives the owner with other owners the right to pick the management of the company, does not promise a fixed annual payment.
How to finance capital expenditure?
To finance a capital expenditure a firm can. sell stock in the company. Among the factors that determine the price of a share of stock in a firm is. expected dividends. If the risk associated with a company goes up, you would expect the price of its stock to. fall.
Is bankruptcy costly to lenders?
TRUE OR FALSE: Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt.
Does capital structure affect free cash flows?
TRUE OR FALSE: A firm’s capital structure does not affect its calculated free cash flows, because FCF reflects only operating cash flows.
Does leverage affect EBIT?
TRUE Or FALSE: Provided a firm does not use an extreme amount of debt, financial leverage typically affects both EPS and EBIT, while operating leverage only affects EBIT.
Is the percentage change in net income greater than the percentage change in net operating income?
The percentage change in net income will be greater than the percentage change in net operating income.