If You Know That Your Firm Is Facing Relatively Poor

question 38

Multiple Choice

If you know that your firm is facing relatively poor prospects but needs new capital,and you know that investors do not have this information,signaling theory would predict that you would

• A) Issue debt to maintain the returns of equity holders.
• B) Issue equity to share the burden of decreased equity returns between old and new shareholders.
• C) Be indifferent between issuing debt and equity.
• D) Postpone going into capital markets until your firm's prospects improve.
• E) Convey your inside information to investors using the media to eliminate the information asymmetry.

Understand the impact of interest rates on the economy and individual financial planning.

Grasp basic principles of inflation and its effects on financial planning and the economy.

Learn the significance of consumer spending and its effects on the economy.

Understand the concepts of risk, including liquidity, inflation, and interest rate risks, in financial planning.