### Finance Quiz**Question 15** The Degree of Financial Leverage Formula calculates the impact of changes on Operating Income on Earnings Per Share. - ◯ True - ◯ False **Question 16** The Degree of Combined Leverage *does not* combine both the top and bottom of the income statement. - ◯ True - ◯ False **Question 17** As a company sells more common stock (equity) it will lower its Earnings Per Share. - ◯ True - ◯ False **Question 18** To decrease the overall risk of a firm; products and investment should be made that have positive correlation to each other. - ◯ True - ◯ False

Q15. Financial leverage occurs when a firm begins to incorporate debt in its capital structure. In…

QUESTION 15 The Degree of Financial Leverage Formula calculates the impact of changes on Operating Income on Earnings Per Share True False QUESTION 16 The Degree of Combined Leverage does not combine both the top and bottom of the income statement. O True False QUESTION 17 As a company sells more common stock (equity) it will lower its Earnings Per Share. True False QUESTION 18 To decrease the overall risk of a firm; products and investment should be made that have positive correlation to each other. O True O Ealco

QUESTION 15 The Degree of Financial Leverage Formula calculates the impact of changes on Operating Income on Earnings Per Share True False QUESTION 16 The Degree of Combined Leverage does not combine both the top and bottom of the income statement. O True False QUESTION 17 As a company sells more common stock (equity) it will lower its Earnings Per Share. True False QUESTION 18 To decrease the overall risk of a firm; products and investment should be made that have positive correlation to each other. O True O Ealco

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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QUESTION 8 Which of the following statements is true? O A. The DuPont Identity is used to calculate Return on Assets. B. A company can imporve their P/E ratio by improving their EPS. O C. A Market to Book ratio greater than 1 always means the stock is undervalued. D. All of the statements are false.
Question 19 Which of the following statements / combinations are correct regarding the Optimal Capital structure of a firm? I. II. III. The optimal capital structure always calls for a debt/assets ratio equal to the one that maximizes expected EPS. An increase in financial leverage used by a firm will always increase the risk and the expected rate of return on equity, thus pushing the firm's stock price to fall. A. I and II B. I, II and III Managers at a firm choose a capital structure so that the mix of securities making up the capital structure minimizes the cost of financing the firm's activities. The optimal capital structure maximizes the total value of the overall value of the firm IV. C. I only D. I, II and IV E. II only
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Analyzing multiple financial ratios at one point in time is a good way to get a broad sense of a business's health, but looking at changes in ratios over time can be misleading because ratios are not designed to be used in this way. O True O False QUESTION 12 If two investments have the same initial cost and economic life, the SRR will be higher for the investment with higher total net return. O True False
7. More on ratio analysis Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company’s ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: High ROE and high risk High ROE and low risk Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company’s performance. If you wanted to conduct a comparative analysis for the current year, you would: Compare the firm’s financial ratios for the current year with its ratios in previous years Compare the firm’s financial ratios with other firms in the industry for…
4
QUESTION 9 If markets are semi-strong efficient, which of the following situations is most likely to yield abnormal returns? O 1. Following the advice of your stockbroker's newsletter O 2. Identifying a pattern in a company's historical stock price O 3. Obtaining insider information Analysing a company's earning report
30 Statements:I. An internal rate of return that is greater than the cost of capital ensures that the company earns above its required return.II. This (I) results to greater value of the company and therefore the wealth of its owners. Group of answer choices Statement II is true. Both statements are true Both statements are false Statement I is true
5. Nonconstant growth stock As companies evolve, certain factors can drive sudden growth. This may lead to a period of nonconstant, or variable, growth. This would cause the expected growth rate to increase or decrease, thereby affecting the valuation model. For companies in such situations, you would refer to the variable, or nonconstant, growth model for the valuation of the company's stock. Consider the case of Portman Industries: Portman Industries just paid a dividend of $2.88 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 20.00% over the next year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 4.00% per year. Assuming that the market is in equilibrium, use the information just given to complete the table. Term Value Dividends one year from now (D1) $3.46 Horizon value (P) $29.32 Intrinsic value of Portman's stock $29.34 ▼ The risk-free rate (rRF) is 5.00%, the market risk…
QUESTION 13 Which of the following statements is correct? O A. The tax benefit from using debt financing reduces a firm's risk O B. The lower the level of a firm's debt, the higher the firm's leverage O C. The lower the level of a firm's debt, the higher the firm's equity multiplier O D. The lower the level of a firm's debt, the lower the firm's equity multiplier
Item 21 of 25 Compared to other firms in the industry, a company that maintains a conservative working capital policy will tend to have a Select the correct response: Greater percentage of short-term financing. Higher total asset turnover. Higher ratio of current assets to fixed assets Greater risk of needing to sell current assets to repay debt.

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