Financial Managers Can Create Value Through Financing Decisions That

question 3

Multiple Choice

Financial managers can create value through financing decisions that:

• A) reduce costs or increase subsidies.
• B) increase the product prices.
• C) create a new security.
• D) Both reduce costs or increase subsidies; and increase the product prices.
• E) Both reduce costs or increase subsidies; and create a new security.

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Definitions:

Fixed Costs

Fixed costs are business expenses that remain constant regardless of the level of production or sales.

Cost Of Capital

The rate of return that a business needs to generate from its investments in order to cover the cost of raising funds, either through debt or equity.

Capital Budgeting

The process used by companies to evaluate which major projects or investments should receive funding.

Incremental Cash Flows

The additional operating cash flow that an organization receives from taking on a new project.