Firms with a high degree of operating leverage are;A. easily capable of surviving large changes in sales volume;B. usually trading off lower levels of risk for higher profits.;C. significantly affected by changes in interest rates.;D. trading off higher fixed costs for lower per-unit variable costs.;Which of the following is not a condition under which a prudent manager would accept some risk in financing?;A. Predictable cash-flow patterns;B. Inventory is highly perishable;C. Price of inventory is stable;D. Easy access to capital markets;Agency theory deals with the issue of;A. when to hire an agent to represent the firm in negotiations.;B. the legal liabilities of a firm if an employee, acting as the firm's agent, injures someone.;C. the limitations placed on an employee acting as the firm's agent to obligate or bind the firm.;D. the conflicts that can arise between the viewpoints and motivations of a firm's owners and managers.;In the percent-of-sales method, an increase in dividends;A. will increase required new funds.;B. will decrease required new funds.;C. has no effect on required new funds.;D. more information is needed.;As the dividend payout ratio declines more external funds are required.;True or False;Cash flow consists of illiquid cash equivalents which are difficult to convert to cash within 90 days.;True or False;The income statement measures the increase in the assets of a firm over a period of time.;True or False;Profitability ratios allow one to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital.;True or False;Computerized cash management and electronic funds transfer allow firms to carry smaller cash balances.;True or False;Stretching the payment period refers to the practice of trying to take a trade discount after the discount period.;True or False;The following is the balance sheet for 2003 for Marbell Inc.;Sales for 2002 were $300,000. Sales for 2003 have been projected to increase by 20%. Assuming that Marbell Inc. is operating below capacity, calculate the amount of new funds required to finance this growth. Marbell has an 8% return on sales and 70% is paid out as dividends.;Attachments;Study Questions.rtf
Capital management - operating versus financial leverage
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