The Fact That Long-Term Debt and Common Stock Are Raised

question 39

True/False

The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis.

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Definitions:

Risk Premium

The extra return expected by an investor for holding a risky asset, over and above the risk-free rate.

Discount Rate

The interest rate used in calculating the present value of future cash flows. It reflects the time value of money and risk.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender or investor.

Nominal Net Cash Flow

The total amount of cash that flows into and out of a business, not adjusted for inflation.