Under which of the following conditions could the overuse of financial leverage be detrimental to the firm? Multiple Choice In a stable industry. When there is cyclical demand for the firm's products. During an upswing in the business cycle. When there is low interest cost compared to return on assets.
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Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?
Multiple Choice
In a stable industry.
When there is cyclical demand for the firm's products.
During an upswing in the business cycle.
When there is low interest cost compared to
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- One of the indirect costs of financial distress is having to sell assets at lower than market value. Using examples explain what this is and how it could effect the value of a firm.Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.Market-based bonus schemes may be considered more appropriate from a PAT perspective in industries in which: successful strategies will not be reflected in accounting profits for a number of periods. the price/earnings ratio is commonly greater than 12. profits may be the subject of manipulation by managers. capital investment is not an important strategic decision.
- Which of the following statements is correct?a. An increase in a firm’s inventories will call for additional financing unless theincrease is offset by an equal or larger decrease in some other asset account.b. A high quick ratio is always a good indication of a well-managed liquidityposition.c. A relatively low return on assets (ROA) is always an indicator of managerialincompetence.d. A high degree of operating leverage lowers the risk by stabilizing the firm’searnings streamWhat are the possible actions that a firm can take if it experiences a financial failure?A firm that is increasing its capital structure leverage and increasing profitability will likely experience a (an) a. increasing value-to-book ratio b. decreasing return on assets c. volatile price-earnings ratio d. None of these answer choices are correct.
- Which of the following is not a factor that a firm's management take into consideration when deciding on its short-term financing policy? Multiple Choice Short-term versus long-term investment opportunities. Maturities of its assets and liabilities. Behaviour of short-term rates versus long-term rates. Product mix demand. Liquidity needs.What can you say about the market value of the company? is it positve or is negative?Which of the following actions should a manager take to optimize the firm's value? * Changing the capital structure if and only if the firm's value rises. Changing the capital structure if and only if the firm's value rises to the advantage of inside management Changing the capital structure if and only if the firm's value increases solely to the benefit of debtholders. Changing the capital structure if and only if the firm's value increases, even if it lowers stockholders' value. Changing the capital structure if and only if the firm's value grows and stockholder equity remains stable.
- Is it true that A high return on assets (Ropa) is an indication that a firm has a high level/value of assets compared to a low profit margin?What are determinants of business risk? Check all that apply: Demand variability Financial leverage Competition and the ability to raise prices Input cost variability Operating leverageASAP What is more important for a firm–profit maximization or value maximization? What issues orconflict of interest can come up between owners and managers and how can they be solved?