Question
In: Finance
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.
Solutions
Expert Solution
From the company perspective, the use of financial leverage can positively or sometimes negatively. It impacts it's its return on equity as a consequence of increased level of risk. So option A is correct, increase the operating risk of the firm
jeff jeffy answered 2 years agoRelated Solutions
Financial leverage will ________ shareholders' expected return and ________ shareholders' risk. increase; do nothing to decrease;...
Financial leverage will ________ shareholders' expected return
and ________ shareholders' risk.
increase; do nothing to
decrease; increase
increase; decrease
increase; increase
(a) (8 marks) Calculate the operating leverage (OL) and financial leverage (FL) for a firm with...
(a) Calculate the operating leverage (OL) and
financial leverage (FL) for a firm with sales of 1,000 units with a
selling price of 10$/unit, variable cost of 6$/unit, fixed costs
(excluding financial charges) of 1,500$, and interest of 750$.
Check your answers by using the elasticity definition of leverage
and sales of 1,100 units.
(b) What is the combined leverage (O&FL) in (a)?
explain what this means if volume increases by 10%.
(c) ( 2 marks) why are taxes and...
(a) (8 marks) Calculate the operating leverage (OL) and financial leverage (FL) for a firm with...
(a) Calculate the operating leverage (OL) and
financial leverage (FL) for a firm with sales of 1,000 units with a
selling price of 10$/unit, variable cost of 6$/unit, fixed costs
(excluding financial charges) of 1,500$, and interest of 750$.
Check your answers by using the elasticity definition of leverage
and sales of 1,100 units.
(b) What is the combined leverage (O&FL) in (a)?
explain what this means if volume increases by 10%.
(c) ( 2 marks) why are taxes and...
(a) (8 marks) Calculate the operating leverage (OL) and financial leverage (FL) for a firm with...
(a) Calculate the operating leverage (OL) and
financial leverage (FL) for a firm with sales of 1,000 units with a
selling price of 10$/unit, variable cost of 6$/unit, fixed costs
(excluding financial charges) of 1,500$, and interest of 750$.
Check your answers by using the elasticity definition of leverage
and sales of 1,100 units.
(b) What is the combined leverage (O&FL) in (a)?
explain what this means if volume increases by 10%.
(c) ( 2 marks) why are taxes and...
(a) (8 marks) Calculate the operating leverage (OL) and financial leverage (FL) for a firm with...
(a) Calculate the operating leverage (OL) and
financial leverage (FL) for a firm with sales of 1,000 units with a
selling price of 10$/unit, variable cost of 6$/unit, fixed costs
(excluding financial charges) of 1,500$, and interest of 750$.
Check your answers by using the elasticity definition of leverage
and sales of 1,100 units.
(b) What is the combined leverage (O&FL) in (a)?
explain what this means if volume increases by 10%.
(c) ( 2 marks) why are taxes and...
Fluctuations in a firm's operating income represent: a. financial leverage b. the weighted average cost of...
Fluctuations in a firm's operating income represent:
a. financial leverage
b. the weighted average cost of capital
c. capital structure
d. business risk
Please define and explain leverage, business risk, sales risk, operating risk, and financial risk, and classify...
Please define and explain leverage, business risk, sales risk,
operating risk, and financial risk, and classify risk.
How does a firm's financial leverage affect its profitability? Its level of risk?
How does a firm's financial leverage affect its profitability?
Its level of risk?
What is operating leverage? What is financial leverage? Explain how greater operating and financial leverage changes...
What is operating leverage? What is financial leverage? Explain
how greater operating and financial leverage changes the riskiness
of the firm to its shareholders.
When estimating the NPV of a project, what are the numerators
in the PV formula? What are the denominators? Could the NPV ever be
negative? Why? In that event, is the decision “go” or “no go”?
Why?
Dividends can have a signaling effect. What is the signal from
a decision to start paying dividends? Of increasing...
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
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