FINANCIAL ACCT(HARDBK)+MYACCTGLAB>ICB<
W20 Edition
ISBN: 9780136615583
Author: REIMERS
Publisher: PEARSON C
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Chapter 7, Problem 10MCQ
To determine
Identify the meaning of positive financial leverage.
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Leverage implies that a company
a.
contains debt financing
b.
contains equity financing
c.
has a high current ratio
d.
has a high earnings per share
Leverage is
a. The ability to earn a satisfactory return on the investments in the business.
b. The ability to pay current debts when they come due.
c. The proportion of debt to stockholders' equity.
d. Also called profit margin.
Financial leverage is the degree to which a firm or individual utilizes .
A. borrowed money to pay wages
B. borrowed money to pay dividends
C. borrowed money to magnify equity earnings
D. borrowed money to diminish equity earnings
Chapter 7 Solutions
FINANCIAL ACCT(HARDBK)+MYACCTGLAB>ICB<
Ch. 7 - Prob. 1YTCh. 7 - Prob. 2YTCh. 7 - Prob. 3YTCh. 7 - If a 1,000 bond is selling for 95.5, how much cash...Ch. 7 - Prob. 5YTCh. 7 - Prob. 6YTCh. 7 - Prob. 7YTCh. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - What is a mortgage?
Ch. 7 - Prob. 4QCh. 7 - Prob. 5QCh. 7 - Prob. 6QCh. 7 - Prob. 7QCh. 7 - Prob. 8QCh. 7 - Prob. 9QCh. 7 - Prob. 10QCh. 7 - Prob. 11QCh. 7 - Prob. 12QCh. 7 - Prob. 13QCh. 7 - Prob. 1MCQCh. 7 - All of the following are current liabilities...Ch. 7 - Prob. 3MCQCh. 7 - Prob. 4MCQCh. 7 - Prob. 5MCQCh. 7 - Prob. 6MCQCh. 7 - Prob. 7MCQCh. 7 - Prob. 8MCQCh. 7 - A 1,000 bond with a stated rate of 8% is issued...Ch. 7 - Prob. 10MCQCh. 7 - Prob. 1SEACh. 7 - Prob. 2SEACh. 7 - Prob. 3SEACh. 7 - Prob. 4SEACh. 7 - Account for mortgages. (LO 3). Nunez Company has...Ch. 7 - Prob. 6SEACh. 7 - Account for bonds. (LO 4). If a 1,000 bound is...Ch. 7 - Prob. 8SEACh. 7 - Prob. 9SEACh. 7 - Prob. 10SEACh. 7 - Prob. 11SEACh. 7 - Prob. 12SEBCh. 7 - Prob. 13SEBCh. 7 - Prob. 14SEBCh. 7 - Prob. 15SEBCh. 7 - Account for mortgages. (LO 3). Curtain Company...Ch. 7 - Prob. 17SEBCh. 7 - Prob. 18SEBCh. 7 - Prob. 19SEBCh. 7 - Prob. 20SEBCh. 7 - Prob. 21SEBCh. 7 - Prob. 22SEBCh. 7 - Prob. 23EACh. 7 - Prob. 24EACh. 7 - Prob. 25EACh. 7 - Prob. 26EACh. 7 - Account for long-term liabilities. (LO 3, 5)....Ch. 7 - Prob. 28EACh. 7 - Prob. 29EACh. 7 - Prob. 30EACh. 7 - Prob. 31EACh. 7 - Prob. 32EACh. 7 - Prob. 33EACh. 7 - Prob. 34EACh. 7 - Prob. 35EACh. 7 - Prob. 36EACh. 7 - Prob. 37EACh. 7 - Prob. 38EACh. 7 - Prob. 39EACh. 7 - Prob. 40EACh. 7 - Prob. 41EACh. 7 - Prob. 42EBCh. 7 - Prob. 43EBCh. 7 - Prob. 44EBCh. 7 - Prob. 45EBCh. 7 - Prob. 46EBCh. 7 - Prob. 47EBCh. 7 - Prob. 48EBCh. 7 - Account for long-term liabilities. (LO 3, 5). On...Ch. 7 - Prob. 50EBCh. 7 - Prob. 51EBCh. 7 - Prob. 52EBCh. 7 - Prob. 53EBCh. 7 - Prob. 54EBCh. 7 - Prob. 55EBCh. 7 - Prob. 56EBCh. 7 - Prob. 57EBCh. 7 - Prob. 58EBCh. 7 - Prepare an amortization schedule for a bond issued...Ch. 7 - Prob. 60EBCh. 7 - Account for current liabilities. (LO 1, 5). On...Ch. 7 - Prob. 62PACh. 7 - Prob. 63PACh. 7 - Prob. 64PACh. 7 - Prob. 65PACh. 7 - Prob. 66PACh. 7 - Prob. 67PBCh. 7 - Prob. 68PBCh. 7 - Prob. 69PBCh. 7 - Prob. 70PBCh. 7 - Prob. 71PBCh. 7 - Prob. 72PBCh. 7 - Prob. 1FSACh. 7 - Prob. 2FSACh. 7 - Prob. 3FSACh. 7 - Prob. 1IECh. 7 - Prob. 2IECh. 7 - Do owners or creditors have more claims on the...Ch. 7 - Prob. 4IE
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- The cost of equity is _______. A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnoverarrow_forwardWhat is the purpose of financial leverage in finance? a) To increase the company's liquidity b) To reduce the company's risk c) To increase the company's profitability d) To magnify the company's returns and risksarrow_forwardQUESTION Generally speaking, the cost of debt is cheaper than the cost of equity. Does it imply that a firm should increase its debt-to-equity ratio to as high as possible such that its corporate cost of capital can be minimized?arrow_forward
- In general, as a company increases the amount of short-term financing relative to long-term financing, the A)Greater the risk that it will be unable to meet principal and interest payments. B)Leverage of the firm increases. C)Likelihood of having idle liquid assets increases. D)Current ratio increases.arrow_forwardA company’s ability to earn more on borrowed money than the associated interest cost so that net income increases is called: A. Interest B. A debenture C. Financial leverage D. Covenantsarrow_forwardA profitability measure of ROE is affected by the level of a firm’s debt. Thus,an investor must consider the debt-equity ratio to evaluate the firm’sprofitability. The debt-equity ratio determines a firm’s financial leverage whichindicates how much of assets the firm is able to deploy for each monetary unitof stockholders’ equity.1) Explain how the financial leverage effect can be defined as the differencebetween ROE and ROA. 2) Explain how the financial leverage effect is affected by the debt ratio and theinterest rate.arrow_forward
- Question Financial leverage is the degree to which a firm or individual utilizes . A. borrowed money to pay wages B. borrowed money to pay dividends C. borrowed money to magnify equity earnings D. borrowed money to diminish equity earningsarrow_forwardUsing leverage to expand your business will increase profitability if youra. return on equity equals the interest rateb. return on equity is lower than the interest ratec. return on assets is higher than the interest rated. return on assets is lower than the interest ratee. none of the abovearrow_forwardCompanies have the opportunity to use varying amounts of different sources of financing, including internal and external sources, to acquire their assets, debt (borrowed) funds, and equity funds. A) Which of the following is considered a financially leveraged firm? A company that uses debt to finance some of its assets A company that uses only equity to finance its assets B) Which of the following is true about the leveraging effect? Under economic growth conditions, firms with relatively more leverage will have higher expected returns. Under economic growth conditions, firms with relatively low leverage will have higher expected returns. C) Blue Sky Drone Company has a total asset turnover ratio of 8.50x, net annual sales of $40 million, and operating expenses of $18 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $1.75 million on which it pays a 7%…arrow_forward
- Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group of answer choices The use of more debt is expected to result in an increase in the firmʹs cost of capital when everything is considered More debt will increase the firmʹs riskiness All of them are valid reasons for a firm to use less debt than might be available The use of more debt is expected to result in a lower price/earnings ratioarrow_forwardExplain how the use of more debt in the company affects return on equity (ROE).arrow_forwardIncome taxes have the effect of A. increasing the cost of debt for a firm. B. decreasing the cost of debt for a firm. C. decreasing the cost of equity for a firm. D. Both B and C are correct.arrow_forward
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