Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 11, Problem 4CRCT
Operating Leverage [LO4] At one time at least, many Japanese companies had a “no-layoff” policy (for that matter, so did IBM). What are the implications of such a policy for the degree of operating leverage a company faces?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Divisional Cost of Capital [LO5] Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions? If the overall firm WACC were used as the hurdle rate for all divisions, would the riskier divisions or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
[S1] Operating leverage will decrease as the company's margin of safety increases. [S2]The break-even point for a capital intensive, automated company will tend to be higher than for a less capital intensive company while the margin of safety will tend to be lower.
Only S1 is true.
Only S2 is true.
Both statements are true.
Both statements are false.
21 Jlgw
?Which of the following is NOT a characteristic of a perfectly competitive market
.It is difficult for a firm to enter or leave the market
.There are many buyers and sellers in the market (B
.Each firm is a price taker
.The products sold by the firms in the market are homogeneous (D
Chapter 11 Solutions
Fundamentals of Corporate Finance
Ch. 11.1 - Prob. 11.1ACQCh. 11.1 - What are some potential sources of value in a new...Ch. 11.2 - Prob. 11.2ACQCh. 11.2 - What are the drawbacks to the various types of...Ch. 11.3 - How are fixed costs similar to sunk costs?Ch. 11.3 - What is net income at the accounting break-even...Ch. 11.3 - Why might a financial manager be interested in the...Ch. 11.4 - If a project breaks even on an accounting basis,...Ch. 11.4 - If a project breaks even on a cash basis, what is...Ch. 11.4 - Prob. 11.4CCQ
Ch. 11.5 - What is operating leverage?Ch. 11.5 - How is operating leverage measured?Ch. 11.5 - Prob. 11.5CCQCh. 11.6 - What is capital rationing? What types are there?Ch. 11.6 - Prob. 11.6BCQCh. 11 - Prob. 11.1CTFCh. 11 - Marcos Entertainment expects to sell 84,000...Ch. 11 - Delta Tool has projected sales of 8,500 units at a...Ch. 11 - What is true for a project if that project is...Ch. 11 - A capital-intensive project is one that has a...Ch. 11 - Pavloki, Inc., has three proposed projects with...Ch. 11 - Forecasting Risk [LO1] What is forecasting risk?...Ch. 11 - Sensitivity Analysis and Scenario Analysis [LO1,...Ch. 11 - Prob. 3CRCTCh. 11 - Operating Leverage [LO4] At one time at least,...Ch. 11 - Operating Leverage [LO4] Airlines offer an example...Ch. 11 - Prob. 6CRCTCh. 11 - Prob. 7CRCTCh. 11 - Prob. 8CRCTCh. 11 - Prob. 9CRCTCh. 11 - Scenario Analysis [LO2] You are at work when a...Ch. 11 - Calculating Costs and Break-Even [LO3] Night...Ch. 11 - Prob. 2QPCh. 11 - Scenario Analysis [LO2] Sloan Transmissions, Inc.,...Ch. 11 - Sensitivity Analysis [LO1] For the company in the...Ch. 11 - Sensitivity Analysis and Break-Even [LO1, 3] We...Ch. 11 - Prob. 6QPCh. 11 - Prob. 7QPCh. 11 - Calculating Break-Even [LO3] In each of the...Ch. 11 - Calculating Break-Even [LO3] A project has the...Ch. 11 - Using Break-Even Analysis [LO3] Consider a project...Ch. 11 - Calculating Operating Leverage [LO4] At an output...Ch. 11 - Leverage [LO4] In the previous problem, suppose...Ch. 11 - Operating Cash Flow and Leverage [LO4] A proposed...Ch. 11 - Cash Flow and Leverage [LO4] At an output level of...Ch. 11 - Prob. 15QPCh. 11 - Prob. 16QPCh. 11 - Sensitivity Analysis [LO1] Consider a four-year...Ch. 11 - Operating Leverage [LO4] In the previous problem,...Ch. 11 - Project Analysis [LO1, 2, 3, 4] You are...Ch. 11 - Project Analysis [LO1, 2] McGilla Golf has decided...Ch. 11 - Prob. 21QPCh. 11 - Sensitivity Analysis [LO1] McGilla Golf would like...Ch. 11 - Break-Even Analysis [LO3] Hybrid cars are touted...Ch. 11 - Break-Even Analysis [LO3] In an effort to capture...Ch. 11 - Prob. 25QPCh. 11 - Operating Leverage and Taxes [LO4] Show that if we...Ch. 11 - Scenario Analysis [LO2] Consider a project to...Ch. 11 - Sensitivity Analysis [LO1] In Problem 27, suppose...Ch. 11 - Prob. 29QPCh. 11 - Prob. 30QP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Question 18 In a perfectly free economy, all buyers and sellers are what? A. utility users B. utility creators C. utility maximizers D. utility diminishers Question 19 Which of the following is the term for a situation in which manufacturers sell to firms only if the firms charge a certain price for the goods? A. retail price maintenance agreements B. bid rigging C. exclusive dealing arrangements D. price discrimination Question 20 An oil company is expanding, but no new oil fields are available. They therefore must resort to the expensive and less-efficient practice of extracting petroleum from oil sands. This is known as __________. A. the principle of increasing marginal cost B. the principle of gross marginal utility C. the principle of diminishing marginal utility D. the principle of increasing marginal utility Question 21 The undesirable and unintended contamination of the environment because of the manufacture or use of commodities is commonly referred to as __________. A.…arrow_forward4. Interest rate parity The rise of globalization is due to the many companies that have become multinational corporations for various reasons-for example, to access better technology, to enter new markets, to obtain more raw materials, to find funding resources, to minimize production costs, or to diversify business risk. This multimarket presence exposes companies to different kinds of risk as well-for example, political risk and exchange rate risk. The relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consider the following: An American investor is considering investing $1,000 in default-free 90-day Japanese bonds that promise a 4% annual nominal return. • The spot exchange rate is ¥101.12 per dollar. • The 90-day forward exchange rate is 100.25 per dollar. The investor's annualized return on these bonds-if he or she can lock in the dollar return by selling the foreign currency in the forward market-will be…arrow_forward7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is solely based on the ROE of the next project? O Project Y, with 40% ROE and a small investment, generating low expected cash flows O Project X, with 35% ROE and a large investment, generating high expected cash flows Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a trend analysis, you would: O Analyze the firm's financial ratios over time Compare…arrow_forward
- which of the following is an example of unsystematic risk? decrease income tax for all company soft tech won a new sales contract increase in inflammation rate deccrease in government bond ratearrow_forwardYou believe that all prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.49. You decide to buy a put option (for 100 shares) with a strike price of $34.05, priced at $2.22. It turns out that you are correct. At expiration, QLT is trading at $30.20. Calculate your profit. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Calls Strike Expiration $30.20 November $34.05 November QLT: Materials-$32.49 Price $1.22 $1.22 come The profit of the trade before trading costs is $. (Round to the…arrow_forwardHow do think multinational companies will help to eliminate the built-in issue of dependency in the globalization of business?arrow_forward
- The globalization of markets, even for services, has increased the number of competitors and often lowered their cost of sales. The high rate of technological change in many industries has created new sources of value for customers, but not necessarily led to increases in profit for the producers. Still, those companies that have the capability to create and implement strategies that take account of these changes are well rewarded for their efforts. True or False?arrow_forwardYou believe that oil prices will be rising more than expected, and that nsing prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.19. You decide to buy a put option (for 100 shares) with a strike price of $33.50, priced at $2.29. What is your profit if you are wrong and the price of XLB increases to $35.50 on the expiration date? (Click on the icon here in order to copy the contents of the data table below into a spreadsheet) QLT: Materials-$32.19 Strike $31.00 $33.50 Calls Expiration Price $1.26 November November $1.26 Puts Expiration Price November $2.58 $2,29 Strike $31.00 $33.50…arrow_forwardWhat are the risks faced by IKEA after they decided to go for global market?arrow_forward
- You believe that oil prices will be rising more than expected, and that rising prices will result in lower earnings for industrial companies that use a lot of petroleum-related products in their operations. You also believe that the effects on this sector will be magnified because consumer demand will fall as oil prices rise. You locate an exchange traded fund, QLT, that represents a basket of industrial companies. You don't want to short the ETF because you don't have enough margin in your account. QLT is currently trading at $32.68. You decide to buy a put option (for 100 shares) with a strike price of $33.90, priced at $2.26. It turns out that you are correct. At expiration, QLT is trading at $30.05. Calculate your profit. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) QLT: Materials-$32.68 Calls Price Strike Expiration $30.05 November $1.26 $33.90 November $1.26 The profit of the trade before trading costs is $ Puts Expiration…arrow_forward_______ DOES NOT affect a firm's business risk. Question 9 options: A ) Revenue variability B) Input price variability C) Demand variability D) The extent to which interest rates on the firm's debt fluctuate E) The extent to which operating costs are fixedarrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Introduction to Divisional performance measurement - ACCA Performance Management (PM); Author: OpenTuition;https://www.youtube.com/watch?v=pk8Mzoqr4VA;License: Standard Youtube License