Operating and Financial Leverage

9067 WordsMay 9, 201237 Pages
Chapter 5 Operating and Financial Leverage Discussion Questions |5-1. |Discuss the various uses for break-even analysis. | | | | | |Such analysis allows the firm to determine at what level of operations it will break even (earn zero profit) | | |and to explore the relationship between volume, costs, and profits. | | | | |5-2.…show more content…
This is inherently risky because the obligation to make payments remains regardless of the condition| | |of the company or the economy. | | | | |5-6. |Discuss the limitations of financial leverage. | | | | | |Debt can only be used up to a point. Beyond that, financial leverage tends to increase the overall costs of | | |financing to the firm as well as encourage creditors to place restrictions on the firm. The limitations of | | |using financial leverage tend to be greatest in industries that are highly cyclical in nature. | | | | |5-7. |How does the
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