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Operating and Financial Leverage

Decent Essays

Chapter 5

Operating and Financial Leverage

Discussion Questions

|5-1. |Discuss the various uses for break-even analysis. |
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| |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. |
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|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. |
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|5-6. |Discuss the limitations of financial leverage. |
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| |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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