When comparing levered vs unlevered Capital structures why does leverage work to increase FPS for very high levels of earnings before interest and tax?

Q: Briefly explain why we refer to the opportunity cost of capital, instead of just “cost of capital”…

A: A cost of capital is referred to as the opportunity cost of capital as it is an opportunity for us…

Q: why an increase in cost of debt will increase cost of capital associated with business risk and…

A: The cost of capital is the minimal rate of return that a company must earn before it may generate…

Q: Why might the weights of capital be different depending on whether book values,market values, or…

A: The weights of the capital should be different for book values of a equity, market value of a…

Q: How does sales stability affect the target capital structure?

A: Target capital structure: Target capital structure is defined as the combination of debt, preferred…

Q: Explain how a change in interest rates in the economy would beexpected to affect each component of…

A: Introduction:   The interest rate is the percentage value of the total borrowed amount that a…

Q: Why is the distinction between paid-in capital andretained earnings important?

A:

Q: Should firms focus on book value or market value capital structures? How would the calculatedWACC be…

A: In all actuality, the organization will have the option to utilize the capital structure dependent…

Q: In computing the cost of capital, do we use the historical costs of existing debt and equity or the…

A: WACC is cost incurred by entity to finance its capital structure. It is sum of weighted individual…

Q: Explain why there is a cost to using reinvested earnings; that is,why aren’t reinvested earnings a…

A: Introduction: Reinvested earnings are the share of direct investors’ earnings from direct…

Q: What is the effect of an increase in the cost of capital on the payback period, profitability index…

A: The correct answer in the given question is: Payback period will not change, Profitability will…

Q: Question: What does ROI stand for in finance? a) Return on Investment b) Risk of Inflation c)…

A: In this question, we are asked to determine the full form of ROI.

Q: Should short-term

A: The cost of capital is the rate of return that is expected by the firm to earn from its investment…

Q: The cost of capital is sometimes referred to as the discount rate or the opportunity cost. What it…

A: Cost of capital is very important in capital budgeting decision making.

Q: Do we utilize the historical costs of existing debt and equity to compute the cost of capital, or do…

A: The Answer

Q: What is the nominal return associated with an investment in capital, and why?

A: Nominal Return is the amount of money generated by an investment.

Q: Why is "Projecting Growth Beyond What the Capital Being Valued Will Support" considered a common…

A: Income Approach There are two different model which was incurred in the income approach.  The…

Q: "We can estimate cost of equity using Capital Asset Pricing Model (CAPM)" True False

A: The cost of equity represents the return required by shareholders to invest in a company's common…

Q: How does the capital asset pricing model (CAPM) influence financial decisions regarding risk and…

A: CAPM is related to the connection between the securities and their expected returns. CAPM is…

Q: What is the trade-off theory of capital structure?How does it differ from MM’s theory?

A: Trade off theory of capital structure: This is a theory in which the company decides on the ratio of…

Q: What are the Factors That Complicate Capital Investment Analysis

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: What is positive and negative financial leverage? How are returns or losses magnified as the degree…

A: Leverage is a growth strategy in which companies or individuals use borrowed funds for increasing…

Q: Why is the cost of capital sometimes referred to as a “hurdle rate”?

A: Cost of capital is the cost of financing a business, investment or a project. Cost of capital is…

Q: ly based on tax rate structure may be less than optimal.

A: Equity: This is one of the tax system evaluationcriteria pertaining to the concept of equal or…

Q: What is a good capital structure? Are low debt ratios always favorable?

A: The capital structure of a corporation is the exact combination of debt and equity used to support…

Q: Why dividen yield ratio increase while dividend payout ratio decrease? please explain in terms of…

A: Dividend Yield ratio:               It is the ratio will be used to calculate the ratio of…

Q: a) Define financial leverage. b) What is the effect on earnings? c) When is the use of financial…

A: a) When the company using the debt capital in order to increases the assets and conducting the…

Q: What is Capital Asset Pricing and is it better then Dividend Valuation Model? If yes, on what…

A: The capital asset pricing model is an extension of the portfolio theory of Markowitz. It derives the…

Q: Profitability index: What is the profitability index, and why is it helpful in the capital rationing…

A: