________ is the potential use of fixed costs to magnify the effect of changes in sales on the firm’s earnings per share. A) Investing leverage B) Total leverage C) Operating leverage D) Financial leverage ANSWER B
Date: September 19th, 2020
The ________ model answers one basic question: How soon will I recover my initial investment? A) payback period B) IRR C) NPV D) profitability index ANSWER Answer: A
Date: September 19th, 2020
Name and describe three key observations that we can make about the capital budgeting decision. What will be an ideal response? ANSWER Answer: There are three key observations we can make about the capital budgeting decision: 1) A capital budgeting decision is typically a go or no-go decision on a product, service, facility, […]
Date: September 19th, 2020
Over the years 1981-2000, 4,770 nonfinancial firms exited the U.S. markets for publicly traded equity. Which of the following was the most frequent reason for a firm’s exit? a. Merger or acquisition b. Bankruptcy or liquidation c. The firm reverted to private equity ownership d. The firm changed its listing to a foreign stock exchange […]
Date: September 19th, 2020
Which of the following is NOT generally considered to be a dividend clientele? A) Clients who are middle-aged and just entering the market. B) Clients in low tax brackets who desire high dividends. C) Clients in high tax brackets who desire low or no dividends. D) Clients who prefer high and reliable streams of investment […]
Date: September 19th, 2020
Capital budgeting decisions are typically long-term decisions. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Advantages to going public with a firm include all but WHICH of the following? A) The ability for management to offer stock options as a recruiting tool for key employees. B) A greater ability for the firm to raise capital. C) A more liquid market for owners to sell their ownership shares. This liquidity typically […]
Date: September 19th, 2020
Through the effects of financial leverage, when EBIT increases, ________. A) earnings per share will increase B) earnings per share will decrease C) fixed operating costs will decrease D) fixed operating costs will increase ANSWER A
Date: September 19th, 2020
The relationship between operating and financial leverage is additive rather than multiplicative. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Consider the following four-year project. The initial after-tax outlay or after-tax cost is $1,000,000. The future after-tax cash inflows for years 1, 2, 3 and 4 are: $400,000, $300,000, $200,000 and $200,000, respectively. What is the payback period without discounting cash flows? A) 2.5 years B) 3.0 years C) 3.5 years D) 4.0 years […]
Date: September 19th, 2020
