Corporate Finance Final Exam Questions with complete solutions
The term "financial leverage" originated from the notion that there is a multiplicative effect on financial performance measured at ________ when borrowe
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Corporate Finance Final Exam Questions with complete solutions
The term "financial leverage" originated from the notion that there is a multiplicative effect on financial performance measured at ________ when borrowed money is used to support the firm. - Return on Equity and Earnings per share
The degree of financial leverage is measured by relating the percentage change in earnings per share to the percentage change in - EBIT
Financial leverage is a direct function of the ratio of - interest expense to EBIT
Which of the following would increase a firm's financial leverage? - an increase in interest expense
Financial leverage increases a firm's ROE and EPS under which of the following circumstances? - ROCE> after tax cost of debt
Financial leverage may benefit shareholders when the - return on capital employed is greater than the after tax cost of debt
The use of fixed cost sources of funds, such as debt and preferred stock affect a firm's - financial risk
The increased variability in earnings per share due to the use of debt is - financial financial risk
The degree of operating leverage is measured by relating the percentage change in EBIT to the percentage change in - sales
Operating leverage involves the use of - fixed costs
The process of evaluating a firm's operations to determine the minimum volume it must sell to avoid losing money is referred to as - breakeven analysis
The difference between fixed and variable costs is - variable costs move up and down with changes in sales while fixed costs remain constant
Financial leverage involves substituting debt for equity in the firm's capital structure, operating leverage involves - substituting fixed costs for variable costs in the firm's cost sturcture
The degree of total leverage is equal to the _________ multiplied by the _____________ - degree of operating leverage, degree of financial leverage
In the MM model, the mix of debt and equity that minimizes the cost of capital is the - optimal capital structure
Increasing a firm's financial leverage also increases - the return on equity
Business risk is associated with - the operating performance
If a firm does not have debt then - the firm has no financial risk
The prices that investors pay for securities are determined by - The cash flows investors expect to receive from owning them
A collection of securities is called a - portfolio
The executive in charge of the finance department is the company's - CFO
Finance has its theoretical roots in _______, but requires a practical understanding of ________ - economics, accounting
The big disadvantage of the proprietorships versus corporations is - the difficulty of raising money to start or expand the business
An S-type corporation is different from a C-type corporation in which of the following way(s) - the way they are taxed
The most common example of abuse of the agency relationship is - management's compensation and perquisites
Which of the following best describes the agency relationship in a business setting - Management are the agents of the stockholders
Depreciation, from the accounting viewpoint, can best be thought of as - allocation the cost over the period of service
Which of the following does not appear on the income statement? - Accumulated depreciation
The income statement line item that shows the performance of operating activities without consideration of financing is - EBIT
Net working capital can be referred to as - current assets minus current liabilities
The net book value of an asset is - original cost less accumulated depreciation
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