Which of the following is a source of financial risk of a firm? Degree of operating...

Which of the following is a source of financial risk of a firm?

Degree of operating leverage
Competitors actions
Sales price volatility
Use of debt

Expert Solution

Use of debt

Increase of debt in capital structure is a financial risk. Debt is one the methods used to finance a project. The risk may occur in the form of default in coupon and principal payments.

jeff jeffy answered 2 years ago

Calculate the degree of operating leverage, degree of financial leverage, and degree of total operating leverage given:

Calculate the degree of operating leverage, degree of financial leverage, and degree of total operating leverage given: Revenue grows from $200 to $230 EBIT grows from $50 to $60 NI grows from $20 to $28

A decrease in a firm's financial leverage will: A. Increase the operating risk of the firm....

A decrease in a firm's financial leverage will: A. Increase the operating risk of the firm. B. Decrease the value of the firm in a non-MM world. C. Decrease the WACC. D. Reduce the variability in earnings per share.

Which of the following is not a source of political risk in many countries?

Which of the following is not a source of political risk in many countries?the presence of military turmoilthe presence of social unrestthe presence of the rule of lawthe presence of violent conflict

Which of the following statements is false? Systematic risk is a market-wide source of risk and...

Which of the following statements is false? Systematic risk is a market-wide source of risk and is non-diversifiable. The beta estimate of the market portfolio is one. The yield to maturity is less than the coupon rate of a premium bond. Assuming no IRR problems, if IRR > cost of capital, the NPV estimate is negative. The reinvestment rate of the MIRR is the cost of capital.

Is it possible for a firm to have a high degree of operating leverage and a...

Is it possible for a firm to have a high degree of operating leverage and a low level of business risk? 200 words

Which of the following is NOT a potential source of cash for a firm? options: A...

Which of the following is NOT a potential source of cash for a firm? options: A decrease in inventory a. A decrease in equity b. A decrease in c. Accounts receivable d. An increase in retained earnings Which of the following is NOT a potential use of cash for a firm? a. An increase in inventory b.An increase in taxes payable c. A decrease in long-term debt d. A decrease in retained earnings

All else equal, which of the following activities should increase the financial risk of a firm?...

All else equal, which of the following activities should increase the financial risk of a firm? Decrease common stock dividends Issue new bonds Issue new common stock Repurchase (pay off) outstanding debt An increase in the fixed operating costs

Which of the following statements concerning financial risk is false? a. Generically, financial risk is...

Which of the following statements concerning financial risk is false? a. Generically, financial risk is related to the probability of a return less than expected. b. If an investment is held in isolation (stand-alone), the appropriate measure of risk is the beta coefficient. c. In theory, you can create a riskless portfolio by combining a large number of investments whose returns are uncorrelated (independent of one another). d. In the real world, it is not possible...

Define risk, and explain how it is measured. Identify a source of firm-specific risk. What is...

Define risk, and explain how it is measured. Identify a source of firm-specific risk. What is the source of market risk? Explain what the coefficient of variation measures.

A firm has the following information for the last two years. Calculate its degree of financial...

A firm has the following information for the last two years. Calculate its degree of financial leverage. This year Last year Sales $1,500,000 $1,300,000 Operating costs $900,000 $800,000 Net income $150,000 $120,000 Number of shares outstanding 50,000 50,000 Allegra Inc. has one million shares outstanding. The company is considering the issue of debt of $15 million. The interest rate on this new debt issue will be 8%, and the number of shares after the debt issue will be reduced to...

Question