Define operating leverage with examples and why it is potentially risky.?

Q: What is the chief disadvantage of ROI as an investmentcenter performance measure? How does the…

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Q: The following are investment constraints EXCEPT Unique needs Liquidity Time horizon Risk tolerance

A: Investment constraints are the factors that limit options for the investor which are outside their…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: Discuss how diversification reduces firm specific risk.

A: Diversification is investing money in many investments rather than a single investment. In…

Q: What does this statement mean? One type of leverage affects both EBIT and EPS. The other type…

A: Operating leverage is based on the cost structure of the company. It is the extent of fixed and…

Q: Which would changes in leverage have no effect on FCFE or FCFF, explain your answer

A: Free cash flow to firm(FCFF) is the cash flow available to supplier of capital. Free cash flows to…

Q: Explain Contraction risk?

A: Contraction risk may be a hazard that the backer of fixed-revenue securities faces. This hazard…

Q: We have seen that market timing has tremendous potential value. Would it therefore be wise to shift…

A: Securities selection is the process where financial securities are chosen and included in the…

Q: Briefly explain the fundamental trade-off between risk and return.

A: Fundamental trade-off among risk and return: Higher risk is related with larger chance of advanced…

Q: What is reinvestment rate risk?

A: The reinvestment rate risk is the potential decline in the interest income that tends to be a result…

Q: Should companies completely avoid high-risk projects? Explain.

A: A huge-risk venture is one that has either a tall rate possibility of capital misfortune or…

Q: How do the FCFE, corporate FCF valuation, and compressed APV models differ? How are they similar?

A: FCFE stands for free cash flow to equity, FCF indicates free cash flow to the firm and APV refers to…

Q: What is NUBD’s degree of operating leverage?

A: Degree of operating leverage shows how operating income of the business will change as a, result of…

Q: How do companies manage risk? What are the factors that contribute to a high-risk project?

A: In business there must be ups and downs in their business surroundings.  In every business there…

Q: Explain this statement: “Using leverage has both good and badeffects.”

A: Financial leverage is said to be made when company uses borrowed capital instead of own capital for…

Q: Define leverage

A: Financial accounting: Financial accounting is the process of recording, summarizing, and reporting…

Q: Define weak form of market efficiency

A: Efficient Market Hypothesis is a hypothesis that states that the asset prices reflect all available…

Q: ?Which of the following statements about operating leverage is false

A: Operating leverage: Operating leverage can be defined as the measure used to identify the increase…

Q: What kind of investment is considered to be risk-free?

A: A risk-free investment is an investment that has a minimum or no fluctuation from the expected…

Q: Illustrate the method of investment risk: Investment?

A: Following are the methods of investment risk: Investment: Standard deviation: Standard deviation…

Q: Explain this statement: Using financial leverage has both good and bad effects.

A: financial leverage is the process of borrowing capital to make an investment, with the assurance…

Q: Explain the effect of leverage on EPS and ROE and what is the break-even EBIT?

A: Leverage refers to the debt amount a company uses in order to finance its assets. EPS refers to…

Q: What is the impact of leverage on WACC?

A: The capital structure of a company is the best combination of numerous funding sources. Equity,…

Q: How might you mitigate the risks that are mentioned? Market, Liquidity, and Operational.

A: Businesses face various types of risks that affect survival and growth of the company. Risks that a…

Q: How can diversification reduce risks? Give examples from the rea world

A: Diversification is the process of managing risk which mixes the individual investments in a…

Q: Explain Yield Enhancement?

A: A "yield enhancement technique" is an investment approach that includes purchasing options at the…

Q: What is the relationship of risk to the investment?

A: There is a direct relationship between risk and return in investment decision making. It means…

Q: “One type of leverage affects both EBIT and EPS. The other type affects onlyEPS.” Explain this…

A: Leverages mean leakage. Leverages word used in corporate for fixed cost because due to fixed cost…

Q: What is the meaning of operating leverage?

A: Leverage ratio: It overlooks the mixture of debt and equity which is required for analyzing the…

Q: How do you define leverage?

A: Solution:- Leverage means as follows under:-

Q: What is operating leverage?

A:

Q: Explain Broader Diversification Reduces Risk?

A: The investment in different financial assets is known as the portfolio of an investor. The…

Q: What is the biggest advantage of using RI to evaluate investment centers?

A: The evaluation of investment centers based on whether the minimum rate of return of the company is…

Q: HAT ARE THE TYPES OF LEVERAGE? HOW ARE THEY CALCULATED AND WHAT DO THEY IMPLY?

A: Leverage is the technique of risk evaluation in a business. There are three types of Leverage…

Q: Explain the importance of the excess-capacity issue in setting a competitive bid price.

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Q: What is meant by the term operating leverage?

A: Definition: Operating leverage: Operating leverage is an outcome of using fixed costs to obtain a…

Q: What is Nancy’s degree of operating leverage?

A: Formula used: Degree of operating leverage = contribution margin / Operating income

Q: What does “investment risk” mean?

A: Risk is referred as uncertainty or loss. Financial risk is referred as the variability of actual…

Q: Illustrate investment risk?

A: Investment risk is the risk associated with the probability of losses occurring in relation to the…