Question

I just need the answers here, no explainations

Q6

a)

Which of the following reasons would cause a firm to want its share price to rise?

		The firm's employees hold company shares due to a company stock purchase plan and a increase in share price would  positively affect morale.
		A higher share price would make the firm less likely to be a takeover target.
		If the firm wants to issue new shares, a higher share price means that the firm has to issue fewer shares and current ownership will less diluted.
		A company's share price indicates the market's perception of the overall health of the firm, and is closely watched by suppliers, customers and lenders, as well as shareholders.

b)

If a bond is selling for less than its par value which one of the following statements would be true?

		Interest rates has increased.
		Inflation expectations have decreased.
		The credit risk of the issuer has decreased.
		Interest rates have decreased.

c)

Which of the following statements are CORRECT regarding the advantages for a firm of issuing debt rather than equity?

		The interest payments on debt are tax deductible.
		There is no change in ownership.
		The firm cannot go bankrupt if it misses interest payments on its debt.
		The firm does not give up any voting rights.

Answer 1

a) A firm would want it's share price to increase, as a higher share price indicates market perception of the overall health of the firm as it is closely watched by the suppliers, creditors, lenders as well as shareholders.

A higher price, makes the firm less likely a target of a a takeover.

The employees of a company with a higher share price, will receive higher compensation and this will increase their morale.

A higher share price means that a firm will issue fewer share and the risk of dilution is no more.

So, the correct option is option A , B C and D.

b) A bond is selling less than par, means that the interest rates have increased. As credit ratings of bonds falls, the price of bonds decreases below par value, to make it attractive to investors. So, option C is incorrect.

So, the correct option is option A.

c)The advantages of firm issuing debt rather than equity:

Interest paid on debt is tax deductible.

So, the correct option is option A, B and D are correct.

Debt holders have no rights of ownership on the firm. As a company issues debt, it does not give up voting rights.

A firm will go bankrupt if it fails to pay interest in debt, so option C is incorrect.