Unfavorable leverage means Return of equity more than return of loan cost Return of equity less than return of loan cost O Both of above
Q: The risk-return trade-off from investing in current assets refers to an increased risk of: a.…
A: Explanation:- The risk-reward difference is an exchange concept that connects large risk and large…
Q: What is meant by positive financial leverage? What about negative financial leverage?
A: Leverage -It refers to the use of source of funds for which the firm has to pay a fixed cost.
Q: What is the Relationship between the Incremental Cost and the Loan-to-Value Ratio?
A: The question is based on the concept loan to value ratio and its relationship with incremental cost.
Q: do liquid assets frequently have lower rates of return than fixed assets?
A: Liquid assets are the cash or cash equivalents which can be drained out frequently whereas fixed…
Q: In determining the optimal weighted average cost of capital, an MNC can never have too much debt.…
A: The Weighted Average Cost of Capital is always post tax. It is calculated with the help of following…
Q: In general, the cost of debt capital is lower than the cost of equity capital. For this reason, it…
A: Generally, it has been observed that the company cost of debt is lower as compared to its equity…
Q: What is the difference of Cost of Equity and the required rate of return on equities?
A: The amount of money that would be transferred to a company's shareholders if all of the company's…
Q: The static GAP focuses on monitoring net interest income in the long term. Select one: True…
A: The Static GAP focuses on monitoring net interest income in the short term but it can be calculated…
Q: Why is there a positive leverage from use of debt? How can we tell that?
A: Positive leverage: Leverage is the concept of investment by using the borrowed funds. Positive…
Q: It is better to use Free Cash Flow to Firm rather than Free Cash Flow to Equity when the leverage is…
A: The free cash flow is the amount of money remaining by adding the non cash expenses of the company.…
Q: one of the following is true regarding the business and financial risk: Select one: a. the business…
A: Business risk refers to that type of risk which involves the decline in profitability and stability…
Q: Explain the reasons why do investors prefer high or low pay out ratio?
A: Dividend refers to that portion of the profits which is distributed among the shareholders as a…
Q: unlevered cost of equity under Modigliani-Miller Model?
A: Formula:
Q: Which one of the following is minimized when the value of the firm is maximized? A- WACC B- Return…
A: To maximize the value of the firm, it is important to have a fair cash flow for the firm. Value of…
Q: A debt ratio sufficiently close to D/A* to where the value of the firm is not much lower than at the…
A: A debt ratio is a financial ratio that measures the indebtedness of a company. It is the ratio of…
Q: Choose option a,b,c,d,e for the following: Question 6 - A higher financial risk: a. Arises when…
A: Financial risk is concerned with the company's ability to generate sufficient cashflows.
Q: What is Degree of financial Leverage and Degree of combined Leverage and its importance.
A: Financial Leverage: It refers to the inclusion of debt for funding the operations of business. It is…
Q: Lower financial leverage is related to the use of additional O a. Debt financing O…
A: Financial leverage refers to the amount of money borrowed by a company to finance its assets and new…
Q: Evaluate the effect of gearing on cost of capital and firm value taking into consideration the…
A: The term “gearing” can be defined as the tool to gauge company’s financial leverage by emphasizing…
Q: Tirole’s model of moral hazard associated with external financing (whether debt or equity) has…
A: A moral hazard develops when there is disproportionate knowledge between two parties and a shift in…
Q: True/False. The optimal amount of debt produces the highest weighted average cost of capital. Group…
A: Solution- The optimal amount of the debt produced the highest weighted averagecost of capital.-False
Q: Distinguish between hard and soft capital rationing
A: Capital rationing is allocating a given amount among the most profitable projects which can maximize…
Q: If either of the liquidity ratios is less than that of the industry as a whole, does that mean that…
A: Following are the liquidity ratios:
Q: Define cost of equity? How does it relate to the ‘required rate of return’ (r) on equities?
A: Definition of Cost Equity: Cost of equity is the return that a company requires for an investment or…
Q: management
A: Working capital management is a strategy that is used by the company in order to ensure efficiency…
Q: Why is EBIT generally considered independent of financial leverage? Why might EBITactually be…
A: EBIT or Earnings Before Interest and Taxes measures all profits before removing interest and tax…
Q: "If the firm's ROE is too low, the firm's debt ratio must be too low." True or false? Select one: O…
A: Return on equity (ROE) is measured as lucre divided by shareholders' equity. once a corporation…
Q: ly based on tax rate structure may be less than optimal.
A: Equity: This is one of the tax system evaluationcriteria pertaining to the concept of equal or…
Q: Give an example of a strength and a weakness of the accounting rate of return approach.
A: ARR stands for accounting rate of return, is a formula which computes the desired rate of return in…
Q: Why does the use of debt lower the profit margin and the ROA?
A: Company needs to raise the fund to have the capital which needs for the business for multiple…
Q: Based on your understanding of the fAactors that affect the cost of money, Identify which of the…
A: Higher inflation rate would lead to higher interest or nominal rate on the borrowed amount. This is…
Q: The building blocks of financial statement analysis does not include: a. Market expectations.…
A: Financial statements are those statements which are prepared at the end of the period in order to…
Q: should we expect the flotation costs for debt to be significantly lower than those for equity
A: Flotation costs are the expenses incurred by a firm when it issues fresh stock. Flotation costs…
Q: Cost of capital O can be calculated with CAPM O is different of the WACC reflects only equity…
A: Solution 1:- Cost of capital means the minimum rate of return required by the fund providers, which…
Q: Define negative working capital. Is a negative working capital a sign of illiquidity or of…
A: Working capital is amount of temporary cash available for companies for timely payments of company…
Q: What is the stuitable strategy to do for, Operating cash does not cover debt, PE Ratio, EPS Ratio,…
A: Debt interest is a financial burden which needs to be paid even if the company does not have…
Q: What happens to the costs of debt and equity when leverageincreases? Explain.
A: Introduction: The term leverage is nothing but using borrowed funds as a source of funding when the…
Q: Capital Asset Pricing Model a) describe the model b) what are the assumptions in the model c)…
A: The capital asset pricing model describes the relationship between the expected return and the risk…
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- Unfavorable leverage means Return of equity more than return of loan cost Return of equity less than return of loạn cost Both of aboveLower financial leverage is related to the use of additional O a. Debt financing O b. Variable costs O c. Fixed costs O d. Equity financingWhich statement is least indicates the benefit of leverage ratio O a. The ability to borrow money O b. Credit risk O c. Solvency Od. Suppliers overlook Clear my choice
- An ideal situation would be to keep leverage high and leverage low Select one: O a. Operating leverage, Financial leverage O b. Financial leverage, Operating leverage O c. Combined leverage, Working capital leverage O d. Operating leverage, Combined leverage"We can estimate cost of equity using Capital Asset Pricing Model (CAPM)" True FalseWhich of the following best represents the relationship between the weighted average cost of capital (WACC) and the minimum attractive rate of return (MARR)? a. WACC and MARR are unrelated b. WACC is a lower bound for MARR c. WACC is an upper bound for MARR d. MARR ≤ WACC.
- What ROI will equate the PV of Inflows and the PV of outflows? a. Internal rate of return (IRR) b. Cost of capital rate c. The desired rate of return d. The minimum rate of return.What is the difference of Cost of Equity and the required rate of return on equities?If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable. Group of answer choices True False