Do not use ChatGPT! Which of the following best describes the concept of leverage in finance? A) Using borrowed funds to increase the potential return on investment B) Reducing risk by diversifying assets C) A method to avoid paying taxes D) Increasing the company’s profit margin
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Do not use ChatGPT!
Which of the following best describes the concept of leverage in finance?
-
A) Using borrowed funds to increase the potential return on investment
-
B) Reducing risk by diversifying assets
-
C) A method to avoid paying taxes
-
D) Increasing the company’s profit margin
Step by step
Solved in 2 steps
- Which of the following is true regarding a company assuming more debt? Select one: a. Assuming more debt is always bad for the company b. Assuming more debt reduces leverage c. Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds d. Assuming more debt is always good for the companyWhat is the definition of “opportunity cost” as it relates to the time value of money? It is the loss of a potential gain choosing one alternative over another, particularly ignoring the time value of money. It is the benefit side of the cost/benefit ratio. It is the price of selling an asset. It is the amount of money invested in saving bonds. exoplain your answer give correct answerDiscussion
- 11.Explain why a firm needs to understand their allocation of debtfinancing to equity (the amount the owner used to fund thebusiness). Discuss how this allocation can impact their Total DebtRatio. Can having too much debt bring down profit margins? Why orWhy Not?Is it better to finance a company thru debt or thru equity? Why? What are the downside and upside to each?The optimal capital structure: a. Maximizes the value of equity but not the tax shield associated with debtb. Minimizes the tax shield associated with debtc. Maximizes the value of the company but not necessarily the tax shield associated with debtd. Maximizes the value of the company and the tax shield associated with debt
- Debt allows an economy to appear very large but debt also creates more ____ in an economy. Inevitability Surety Certainty Risk BusinessThe supply and demand for loans will increase when capital becomes more productive. Select one: True FalseWhile the use of debt can lower the average cost of capital, there is a point that the debt leverage gets high enough it increases the cost of capital. Group of answer choices True False
- Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing. A. Consider this case: Short-term credit agreements are more restrictive than long-term credit agreements. Identify whether the preceding statement is true or false. This statement is false. This statement is true. B. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source. Description Short-Term Financing Source Continually recurring…In finance, diversification is used to:A) Increase expected returnsB) Minimize transaction costsC) Reduce unsystematic riskD) Eliminate all risksFrom the point of view of the borrowing business, loan capital tends to be cheap but risky. In what sense is it risky?
