What is positive and negative financial leverage? How are returns or losses magnified as the degree of leverage increases? How does leverage on a before-tax basis differ from leverage on an after-tax basis?

Q: What is meant by the term financial leverage?

A: Borrowed Capital: The money which is borrowed by a company from outsiders for a specified period of…

Q: What is financial leverage? Why is a one-year measure of return on investment inadequate in…

A: Financial leverage: The benefit from use of financial leverage arises when the interest rate on the…

Q: During economic downturns, negative financial leverage will have a positive dampening effect on ROE.…

A: Financial leverage means using the borrowed money for making investments in various assets. The main…

Q: Evaluate the effect of gearing on cost of capital and firm value taking into consideration the…

A: Answer

Q: What is meant by positive financial leverage?  What about negative financial leverage?

A: Leverage -It refers to the use of source of funds  for which the firm has to pay a fixed cost.

Q: When comparing levered vs unlevered Capital structures why does leverage work to increase FPS for…

A: There can be two types of firms based on their capital structure. The firm which is completely…

Q: Can you please give some examples of firms whereby a positive relationship exists between operating…

A: Leverage: The term leverage, in general, refers to a relationship between two interrelated…

Q: What are the two fixed financial costs most commonly found on the firm’s income statement in respect…

A: In finance, the term “leverage” represents use of outsiders’ funds to finance capital assets of the…

Q: What does it mean if the companies operating leverage is higher or lower than another company!

A: Operating leverage is used to determine the efficiency of the firm to utilize fixed operating…

Q: If a firm is using financial leverage successfully, the ROE should be a. higher than the profit…

A: Answer is option b) Higher than ROA Financial leverage = Earnings Before Interest and Taxes /…

Q: Would the profit change associated with sales changes be larger or smaller if a firm increased its…

A: Operating leverage refers to fixed cost level associated to the operations of a company. A company…

Q: how to assess a company's success in using leverage to increase returns?

A: Leverage refers to the risk involved and the borrowed capital that is used to undertake a project…

Q: How can an unlevered firm uptain financial leverage

A: Unlevered firm is a firm with no debt in its capital structure. It does not have any financial…

Q: Why is there a positive leverage from use of debt? How can we tell that?

A: Positive leverage: Leverage is the concept of investment by using the borrowed funds. Positive…

Q: What are the two different formulas used to Calculate the degree of financial leverage (DFL)?

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: Explain how profits or losses can be magnified for a firm with high operating leverage as opposed to…

A: Operating Leverage: It is ratio to change in operating profit to change in revenue. Any change in…

Q: It is better to use Free Cash Flow to Firm rather than Free Cash Flow to Equity when the leverage is…

A: The free cash flow is the amount of money remaining by adding the non cash expenses of the company.…

Q: Why is financial leverage is attractive

A: Introduction : In simple words, financial leverage refers to the process in which a company buys…

Q: 3. How large is the gap between Beta(Asset) and Beta(Leverage)? What is the impact of their…

A: Beta is a metric used by shareholders to correlate the uncertainty of a securities or portfolio to…

Q: Describe how financial leverage can increase return on owners’ equity.

A: Introduction: In finance, leverage is a general concept to combine gains and losses by some…

Q: Unfavorable leverage means Return of equity more than return of loan cost Return of equity less than…

A: Unfavourable leverage occurs when the firm does not earn the funds cost(i.e. loan cost).

Q: Through the effects of financial leverage, when EBIT decreases, earnings per share will

A: EBIT(Earnings before interest and taxes) is a measurement of a company's profitability directly…

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: Briefly define capital risk and explain how a positive leverage-adjusted duration gap can contribute…

A: Capital risk is the potential of loss of part or all of an investment. It applies to the whole gamut…

Q: Define the term s financial leverage?

A: Financial leverage means buying the asset by taking the debt. The company always uses leverage…

Q: What is Degree of financial Leverage and Degree of combined Leverage and its importance.

A: Financial Leverage: It refers to the inclusion of debt for funding the operations of business. It is…

Q: Financial leverage is the degree to which a firm or individual utilizes             . A.…

A: Financial Leverage: Financial leverage is a term used to define the capital structure of a company…

Q: What could possibly go wrong while using financial leverage? Do you think it should be utilized by a…

A: Financial leverage: Financial leverage is a word that describes the use of borrowed money (debt) to…

Q: What is the difference between financial leverage and operating leverage

A: Operating leverage: Operating leverage is a sign of how a corporation's costs are organized and is…

Q: Explain how do analysts use ratios to analyse a firm’s leverage?

A: Ratios plays an important role in determining and analysing financial position of the company.…

Q: Define financial leverage. Explain how financial leverage works to the benefit of the common…

A: Financial leverage is the borrowing of debt to finance assets of the corporation. The financial…

Q: Why do the companies in high tax brackets incur lower after-tax interest costs by financing through…

A: Debts are the liability issued by the company to raise funds. The debt holder receives fixed…

Q: Explain Financial Leverage?

A: Companies going for purchase of assets have three options for financing. They are equity, debt &…

Q: What factors contribute to the risk of overusing financial leverage?

A: Financial leverage is the use of debt in the capital structure to acquire additional assets. Use of…

Q: What is financial leverage?

A: Capital Structure:   It refers to the combination of debt and equity that constitutes the finances…

Q: what are the benefits/risks of financial leverage?

A: Financial leverage is a condition wherein a company raises funds through the issue of additional…

Q: What will be the Conditions for Positive Leverage Before Tax?

A: Definition of Positive Leverage. Positive Leverage is a situation when a business or individual…

Q: Why is EBIT generally considered independent of financial leverage? Why might EBITactually be…

A: EBIT or Earnings Before Interest and Taxes measures all profits before removing interest and tax…

Q: Which is equivalent to EBIT assuming the firm has no leverage?     a. EBT     b. EAT     c. EAT +…

A: EBIT means Earning before Interest and taxes. it is calculated by subtracting COGS(cost of goods…

Q: ly based on tax rate structure may be less than optimal.

A: Equity: This is one of the tax system evaluationcriteria pertaining to the concept of equal or…

Q: income tax bracket. Compute the following for the firm: a. Degree of operating leverage b. Degree of…

A: Operating Leverage: It refers to the company's ability to apply fixed costs for generating more…

Q: a) Define financial leverage. b) What is the effect on earnings? c) When is the use of financial…

A: a) When the company using the debt capital in order to increases the assets and conducting the…

Q: minimizes the financial distress costs. equates the present values of the incremental interest tax…

A: In finance trade off theory refers to that theory in which a company determines how much debt and…

Q: What happens to the costs of debt and equity when leverageincreases? Explain.

A: Introduction: The term leverage is nothing but using borrowed funds as a source of funding when the…

Q: Is the accounting rate of return (ARR) the same thing as the return on investment (ROI)?

A: Yes, Accounting rate of return (ARR) the same thing as the Return on investment (ROI). The…