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In the video on leverage, leverage is compared to a fulcrum in that you need just the right balance of leverage. That would seem to indicate that there is a point where the leverage is just right and that too little leverage may be just as harmful as too much leverage. Do you think this is true?
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- Since the use of leverage can benefit a fum when times are good, a high degree of leverage is typically considered optimal by firms. True falseExplain this statement: Using financial leverage has both good and bad effects.The higher the operating leverage, the better thecompany’s future performance. Do you agree or disagree with his statement?
- Read the article below and answer the questions. Required:a. What is leverage? Explain the different types of leverage? b. From the article, the Chief Executive Officer (CEO) of AirAsia Group Berhad is tryingto cope with what type of leverage? Please discuss THREE (3) points to support yourargument.Explain the effect of leverage on EPS and ROE and what is the break-even EBIT?a. Another of Matilda’s colleagues is looking at the yield curve and asks for an explanation as to why it has the current shape. Matilda explains using the two forms of the “biased” expectations theory. Define the two forms, and explain why they are referred to as “biased”.
- Consider variance analysis in a service industry. Is it a good thing to use or a bad thing to use? Why? What good behaviors could it encourage? What bad behaviors might it encourage? Consider a service industry you are familiar with or something like a call center or tax practice in your discussion.Define operating leverage with examples and why it is potentially risky.?Why do most small businesses operate with less leverage than Miller and Modigliani’s model would consider to be optimal? Explain.
- The value of any model is that it enables the user to make inferences about the real situation. True orFalse If variable costs increase, but price and fixed costs are held constant, the break even point will decrease. True or False If variable costs increase, but price and fixed costs are held constant, the break-even point will decrease. True orFalseWhat is Operating Leverage and is it good or bad?In what way can the use of ROI as a performance measure for investment centers lead to bad decisions? What can be used to help overcome this problem?