An increase in a current asset or long-term liability produces a cash inflow.
If a firm uses short-term sources of finance instead of long-term, its financial risk is
increased.
If a firm has retained earnings, it has an equal amount of cash.
Partnerships pay tax on their earnings at the same rates paid by corporations.
Unsystematic risk is the tendency for stock prices to move together.
Open market operations is a more flexible tool of monetary policy than the discount
rate.
Realized returns include both dividends and price changes.
What is the repayment schedule for the first three years for a twenty-year mortgage loan
of $75,000 with a 12% rate of interest if the annual payment is $10,041.50? (This
material was initially covered in Chapter 7, and the concept reappears in this chapter.)
It is not wise to use commercial paper or trade credit to finance plant and equipment.
As the firm increases its use of equity instead of debt financing, the cost of equity rises.
When commercial banks grant loans to the public, their Total reserves are reduced.
The value of a stock index put option will rise if the market as a whole declines.
If profit margins increase as sales increase, the need for external finance is reduced.
In corporations the stockholders are equally liable for the debts of the firm.
A decrease in operating leverage may be achieved by increasing fixed costs relative to
variable costs.
The optimal capital structure does not necessarily minimize the cost of equity.
If the firm issues debentures instead of preferred stock to raise additional funds, the cost
of capital rises.
An exchange-traded fund tends to sell for a large discount from its net asset value.
Securities markets are often inefficient, so investors can anticipate beating the market
over a period of years.
Since M-2 excludes time deposits, M-2 is a less comprehensive measure of the money
supply than M-1.