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When a firm employs no debt?
It has a financial leverage of zero.
If a firm has no operating leverage and no financial leverage then a 10 percent increase in sales will have what effect on EPS?
It will inrease by 10%
What are the importance of operating leverage?
help to judge risk in the firm
How does the interest rate on new debt influence the use of financial leverage?
The higher the interest rate on new debt, the less attractive financial leverage is to the firm
What is the impact of financial leverage on stockholders?
Financial leverage makes no impact on stockholders as any stockholder who prefers the proposed capital structure (ie leverage) can simply create it using homemade leverage. Note: financial leverage refers to the extent to which a firm relies on debt. Homemade leverage is the use of personal borrowing to change the overall amount of financial leverage to which the individual is exposed
What is meant by operating leverage?
Operating Leverage may be defined as the ability of a firm to use its fixed operating costs (rent etc.) to magnify the effect of changes in sales on its earnigs before interest and tax (EBIT).
What ratios assess the degree of financial leverage in a firm's capital structure?
Ratios that assess the degree of financial leverage in a firm's capital structure include the debt-to-equity ratio, which compares total liabilities to shareholders' equity, indicating the proportion of debt financing relative to equity. The debt ratio, calculated as total debt divided by total assets, shows the percentage of a firm's assets financed by debt. Additionally, the interest coverage ratio, which measures earnings before interest and taxes (EBIT) against interest expenses, evaluates a firm's ability to meet its interest obligations. These ratios provide insights into the firm's financial risk and leverage position.
When a firm employs no debt?
It has a financial leverage of zero.
If a firm has no operating leverage and no financial leverage then a 10 percent increase in sales will have what effect on EPS?
It will inrease by 10%
What are the importance of operating leverage?
help to judge risk in the firm
How is net operating income calculated?
Net. Operating. Income. Can. Be. Calculated. By. Using. The. Following. formula. V=EBIT/k0 V=value. of. a firm EBIT=net operating. income or. earnings. before. Interest and tax K0=overall. Cost. Of. Capital
Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage?
Would the profit change associated with sales changes be larger or smaller if a firm increased its operating leverage?"
What effect does leasing have on a firm's capital structure?
Leasing is a substitute for debt financing, so leasing increases a firm's financial leverage.
Which group of ratios might be most interesting to potential creditors of a firm?
leverage ratios
How does the interest rate on new debt influence the use of financial leverage?
The higher the interest rate on new debt, the less attractive financial leverage is to the firm
What are the Factors affecting beta of a portifolio?
Factors that affect the beta of a portfolio are the kind of business the firm is in, and the extent of operating leverage the firm has. A third factor is the extent of the firm's financial clout.
What is the impact of financial leverage on stockholders?
Financial leverage makes no impact on stockholders as any stockholder who prefers the proposed capital structure (ie leverage) can simply create it using homemade leverage. Note: financial leverage refers to the extent to which a firm relies on debt. Homemade leverage is the use of personal borrowing to change the overall amount of financial leverage to which the individual is exposed
