Fundamentals of Corporate Finance Canadian 6th Edition By Brealey - Test Bank

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

1) Only small companies can go through financial markets to obtain financing.

Answer: True False

2) The reinvestment of cash back into the firm's operations is an example of a flow of savings to

investment.

Answer: True False

3) Smaller businesses are especially dependent upon internally generated funds.

Answer: True False

4) An individual can save and invest in a corporation only by lending money to it or by purchasing

additional shares.

Answer: True False

5) Previously issued securities are traded among investors in the secondary markets.

Answer: True False

6) Only the IPOs for large corporations are sold in primary markets.

Answer: True False

7) The markets for long-term debt and equity are called capital markets.

Answer: True False

8) The derivative market is also a source of financing for corporations.

Answer: True False

9) Apple Computer is well known for its product innovations. Access to financing was vital to Apple's

growth and profitability.

Answer: True False

10) Whenever there is uncertainty, investors might be interested in trading, either to speculate or to lay

off their risks, and a market may rise to meet the trading demand.

Answer: True False

11) Financing for public corporations must flow through financial markets.

Answer: True False

12) Financing for private corporations must flow through financial intermediaries.

Answer: True False

13) Hedge fund managers, unlike mutual fund managers, do not receive fund-performance-related fees.

Answer: True False

14) In the United States, banks are the most important source of long-term financing for businesses.

Answer: True False

115) A financial intermediary invests in financial assets rather than real assets.

Answer: True False

16) The stocks of major corporations trade in many markets throughout the world on a continuous or

near-continuous basis.

Answer: True False

17) The key to the banks' ability to make illiquid loans is their ability to pool liquid deposits from

thousands of depositors.

Answer: True False

18) For corporate bonds, the higher the credit quality of an issuer, the higher the interest rate.

Answer: True False

19) Like public companies, private companies can also use their stock price as a measure of

performance.

Answer: True False

20) Financial markets and intermediaries allow investors and businesses to reduce and reallocate risk.

Answer: True False

21) Almost all foreign exchange trading occurs on the floors of the FOREX exchanges in New York and

London.

Answer: True False

22) The cost of capital is the interest rate paid on a loan from a bank or some other financial institution.

Answer: True False

23) The opportunity cost of capital is the expected rate of return that shareholders can obtain in the

financial markets on investments with the same risk as the firm's capital investments.

Answer: True False

24) The cost of capital is the minimum acceptable rate of return for capital investment.

Answer: True False

25) The rates of return on investments outside the corporation set the minimum return for investment

projects inside the corporation.

Answer: True False

26) During the Financial Crisis of 2007-2009, the U.S. government bailed out all firms in danger of

failing.

Answer: True False

27) From June 2001 to June 2006, housing prices in the United States doubled.

Answer: True False