way to assess financial risk that a company should be aware of is the company,s operating leverage . A higly - leveraged company has relatively ----------- fixed costs and -------- variable costs . such a firm is ------------ because small changes in volome lead to --------- changes in net income
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way to assess financial risk that a company should be aware of is the company,s operating...
In a company with low operating leverage, less risk is assumed than in a highly leveraged firm fixed costs are more than the contribution margin O contribution margin and operating income are inversely related there is a higher possibility of net loss than a higher-leveraged firm
Integrative-Leverage and risk Firm R has sales of 97,000 units at $2.03 per unit, variable operating costs of $1.67 per unit, and fixed operating costs of $6,070. nterest is $10,080 per year. Firm W has sales of 97,000 units at $2.56 per unit, variable operating costs of $0.97 per unit, and fixed operating costs of $62,400 Interest is $17,200 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of operating, financial, and total...
Integrative—Leverage and risk Firm R has sales of 101,000 units at $1.97 per unit, variable operating costs of $1.68 per unit, and fixed operating costs of $6,010. Interest is $10,080 per year. Firm W has sales of 101,000 units at $2.59 per unit, variable operating costs of $0.98 per unit, and fixed operating costs of $62,600. Interest is $17,400 per year. Assume that both firms are in the 40% tax bracket. a. Compute the degree of operating, financial, and total...
all else being equal, a company with a high operating leverage
will have
All else being equal, a company with a high operating leverage will have relatively low risk. relatively high contribution margin ratio. relatively high variable costs. relatively low fixed costs.
Integrative-Leverage and risk Firm has sales of 104.000 units at $2.05 per unit, variable operating costs of $1.71 per unit, and fixed operating costs of $6,000 Interest is $10.080 per year Firm Whas sales of 104 000 units at $2.56 per unit, variable operating costs of $0.98 per unit, and fixed operating costs of $62,800 Interest is $17.900 per year. Assume that both firms are in the 40% tax bracket a. Compute the degree of operating, financial, and total leverage...
You are helping the CFO of a manufacturing company assess whether the firm should embark on a plan to reduce its financial leverage. The firm currently has equity with a market value of S 350 million and debt outstanding (in market value terms) of $ 700 million. The cost of equity currently is 10% and the pre- tax cost of borrowing is 8%. (The riskfree rate is 2.5% , the tax rate is 40% and the equity risk premium is...
Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower-lender relationships. Assume the Mitaka Company has a sales volume of 136,000 units at a price of $26 per unit; variable costs are $6 per unit, and fixed costs are $1,910,000. Interest expense is $411,000. What is the degree of combined leverage for this Japanese firm? (Round your answer to 2 decimal places.) Degree of combined leverage
Question 10 Which of the following is true about the degree of operating leverage? Operating leverage is higher if fixed operating costs are high relative to variable operating costs Higher operating leverage increases the sensitivity of operating income to changes in sales Operating leverage magnifies both profits and losses, helping in the good times and causing pain in the bad times All of the above Question 12 What does the beta measure? unsystematic risk. systematic risk diversifiable risk company-specific risk Question 14 Why do we use Capital Asset Pricing Model (CAPM)? because it is...
Operating Leverage. High operating leverage means: The company has relatively high fixed costs. The company has relatively low fixed costs. The company will have to sell fewer units than a comparable company with low operating leverage to break even. The company will have to sell more units than a comparable company with low operating leverage to break even. Both (2) and (3) are correct. Both (1) and (4) are correct.
You are helping the CFO of a manufacturing company assess whether the firm should embark on a plan to reduce its financial leverage. The firm currently has equity with a market value of $ 350 million and debt outstanding (in market value terms) of $ 700 million. The cost of equity currently is 10% and the pre-tax cost of borrowing is 8%. (The riskfree rate is 2.5% , the tax rate is 40% and the equity risk premium is 6%)...