Question 1

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

Accepted Answer

A) True 
 B)False

Question 2

In estimating the cost of equity, the rate of return on U.S.Treasury bills is often used as a proxy for the risk free rate of return.

Accepted Answer

A) True 
 B)False

Question 3

The minimum required rate of return is a weighted average of the firm's cost of various sources of capital.

Accepted Answer

A) True 
 B)False

Question 4

Operating leverage is affected by such items as rental payments, contractual employee salaries, and general and administrative overhead expenses.

Accepted Answer

A) True 
 B)False

Question 5

A9.51 A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Accepted Answer

A) plus 
B) minus 
C) times 
D) divided by 
A) plus 
B) minus 
C) times 
D) divided by

Question 6

Flotation costs include:

Accepted Answer

A) cost of printing shares 
B) legal and accounting costs 
C) investment banker fees 
D) all the above 
A) cost of printing shares 
B) legal and accounting costs 
C) investment banker fees 
D) all the above

Question 7

A firm with a DOL of 2, and no preferred stock, and no long-term debt will have a DCL of:

Accepted Answer

A) 0 
B) 2 
C) 1 
D) cannot tell from this information 
A) 0 
B) 2 
C) 1 
D) cannot tell from this information

Question 8

If a firm has current earnings per share of $2 and a degree of combined leverage of 4, a 10% increase in sales would result in earnings per share of:

Accepted Answer

A) $2.80 
B) $8 
C) $2.20 
D) cannot tell from this information 
A) $2.80 
B) $8 
C) $2.20 
D) cannot tell from this information

Question 9

The degree of financial leverage measures the sensitivity of __________ to changes in __________.

Accepted Answer

A) net sales, EBIT 
B) EBIT, net sales 
C) EBIT, EPS 
D) EPS, EBIT 
A) net sales, EBIT 
B) EBIT, net sales 
C) EBIT, EPS 
D) EPS, EBIT

Question 10

Which of the following statements is false?

Accepted Answer

A) Other factors being constant, higher fixed costs mean a higher operating leverage. 
B) Corporate bonds and notes provide no voting rights. 
C) The cost of debt is the minimum acceptable rate of return to a firm on a project of average risk. 
D) All of the above statements are true. 
A) Other factors being constant, higher fixed costs mean a higher operating leverage. 
B) Corporate bonds and notes provide no voting rights. 
C) The cost of debt is the minimum acceptable rate of return to a firm on a project of average risk. 
D) All of the above statements are true.

Question 11

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Accepted Answer

A) plus 
B) minus 
C) times 
D) divided by 
A) plus 
B) minus 
C) times 
D) divided by

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

In estimating the cost of equity, the rate of return on U.S.Treasury bills is often used as a proxy for the risk free rate of return.

The minimum required rate of return is a weighted average of the firm's cost of various sources of capital.

Operating leverage is affected by such items as rental payments, contractual employee salaries, and general and administrative overhead expenses.

A9.51 A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Flotation costs include:

A firm with a DOL of 2, and no preferred stock, and no long-term debt will have a DCL of:

If a firm has current earnings per share of $2 and a degree of combined leverage of 4, a 10% increase in sales would result in earnings per share of:

The degree of financial leverage measures the sensitivity of to changes in .

Which of the following statements is false?

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Filters

Exam 18: Capital Structure and the Cost of Capital

The sustainable growth rate measures how quickly a firm can increase its asset base over the next year without raising outside funds.

In estimating the cost of equity, the rate of return on U.S.Treasury bills is often used as a proxy for the risk free rate of return.

The minimum required rate of return is a weighted average of the firm's cost of various sources of capital.

Operating leverage is affected by such items as rental payments, contractual employee salaries, and general and administrative overhead expenses.

A9.51 A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

Flotation costs include:

A firm with a DOL of 2, and no preferred stock, and no long-term debt will have a DCL of:

If a firm has current earnings per share of $2 and a degree of combined leverage of 4, a 10% increase in sales would result in earnings per share of:

The degree of financial leverage measures the sensitivity of __________ to changes in __________.

Which of the following statements is false?

A firm's degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Filters

The degree of financial leverage measures the sensitivity of to changes in .