In: Finance
State whether the following statements are true or false and support it with reasons .
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1) False
Operating leverage explains the impact of change in profits with the change in the level of sales. It is a measure of fixed cost in the operating cost structure.
2) False
If ROE and ROA are different that means there is leverage, debt in the capital structure because ROE = ROA * financial leverage.
3) False
Financial leverage explains as to how much of total asset is financed with equity.
4) False
Financial leverage explains the impact of debt level and it can be positive as well as negative depending on the return.
5) True
ROA according to du Pont is equal to net profit margin multiplied by asset turnover.
6) False
If the firm is leveraged ROE and ROA can be different because ROE = ROA * financial leverage
7) True
Additional financing needed are affected by retained earning and net profit margin, higher these factors lower would be the additional funds needed.
8) False
Operating leverage reflects the fixed cost in the operating cost structure.
9) False
Capital budgeting is a long-term capital investment decision.
10) False
The process of going from future value to present value is called discounting process.