An Action on the Part of a Firm That Increases

question 182

True/False

An action on the part of a firm that increases the level of expected cash flows without a corresponding increase in risk should reduce share value; An action that reduces the level of expected cash flows without a corresponding decline in risk should increase share value.

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Definitions:

Market Value

The contemporary selling or buying price of a service or asset in the market.

Maturity Risk

The risk associated with the uncertainty of returns due to changes in interest rates as an investment approaches its maturity date.

Interest Rate Changes

Variations in the cost of borrowing money or the rate paid on savings, which can affect economic activity.

Market Interest Rates

The prevailing rates at which borrowers can obtain loans and lenders can earn interest in the financial markets, influenced by monetary policy, market demand, and economic conditions.