Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the proceeds from borrowing to pay out dividend. Assume this is an NFA firm. The combination of two financial transactions will A. reduce the financial leverage (FLEV) and the firm will continue to be an NFA firm. B. reduce the financial leverage (FLEV) and the firm will switch to an NFO firm. C. increase the financial leverage (FLEV) and the firm may become be an NFO firm. D. increase the financial leverage (FLEV) and the firm cannot be an NFA firm anymore.

Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the proceeds from borrowing to pay out dividend. Assume this is an NFA firm. The combination of two financial transactions will A. reduce the financial leverage (FLEV) and the firm will continue to be an NFA firm. B. reduce the financial leverage (FLEV) and the firm will switch to an NFO firm. C. increase the financial leverage (FLEV) and the firm may become be an NFO firm. D. increase the financial leverage (FLEV) and the firm cannot be an NFA firm anymore.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 8QE

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