In financial leverage, why not simply increase leverage as long as the firm is able to earn

Question:

In financial leverage, why not simply increase leverage as long as the firm is able to earn more on the employment of the funds thus provided than they cost? Would not earnings per share increase?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Fundamentals Of Financial Management

ISBN: 9780273713630

13th Revised Edition

Authors: James Van Horne, John Wachowicz

See More Books

Question Posted: Dec 07, 2015 05:48 AM

See More Questions

This problem asks you to evaluate a major increase in financial leverage on the part of Nova Products, Inc. The companys financial statements for 20152017 and specific questions are available for...
Answer the following multiple-choice questions: a. In 2007 and 2008, Zoret Company reported earnings per share of $0.80 and $1.00, respectively. In 2009, Zoret Company declared a 4-for-1 stock split....
Sue Wilson is the new financial manager of Northwest Chemicals (NWC), an Oregon producer of specialized chemicals that are sold to farmers for use in fruit orchards. She is responsible for...
Social welfare is maximized when O Total social benefits have been maximized O total social costs have been minimized O total social costs equal total social benefits O marginal social costs equal...
Presented here is information for Telco, Inc. for the year ended December 31, 2013. Telco, Inc. Beginning: Assets ...........$66,000 Liabilities .......... 15,000 Ending: Assets ...........$94,000...
According to the U.S. Bureau of Labor Statistics, 75% of the women 25 through 49 years of age participate in the labor force. Suppose 78% of the women in that age group are married. Suppose also that...
List an advisor's duties that are excluded under the AICPA's Statements on Standards for Tax Services.
(Multiple Choice) 1. Which of the following is classified as an accrued payroll liability? Federal Income Employees Share Tax Withheld of F.I.C.A. Taxes a. No ............Yes b. No ............ No c....
3x+1 1. Determine the approximate slope of the tangent to the curve f(x) = 2x+7 at x=-2, to one decimal place.
On December 1, a six-month liability insurance policy was purchased for $900. Analyze the required adjustment as of December 31 using T accounts, and then formally enter this adjustment in the...
How can coverage ratios be used to determine an appropriate amount of debt to employ? Are there any shortcomings to the use of these ratios?
Describe how a company could determine its debt capacity by increasing its debt hypothetically until the probability of running out of cash reached some degree of tolerance.
a. Find the local extrema of each function on the given interval, and say where they occur. b. Graph the function and its derivative together. Comment on the behavior of in relation to the signs and...
True Or False Public disclosure of private facts occurs when private details are published about the plaintiffs life that would be highly offensive to a reasonable person.
True Or False Invasion of privacy originated as the result of a Law Review article.
In todays defamation law, the standard of proof a plaintiff must meet is determined by the ____________ of the plaintiff and the ____________ involved.
True Or False Respond eat superior means let everyone answer.
True Or False Absolute immunity applies to spousal communications.
In Problem 1, what was the dividend yield? The capital gains yield? Data From Problem 1: Suppose a stock had an initial price of $91 per share, paid a dividend of $2.40 per share during the year, and...
Chris Zulliger was a chef at the Plaza Restaurant in the Snowbird Ski Resort in Utah. The restaurant is located at the base of a mountain. As a chef for the Plaza, Zulliger was instructed by his...
Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days. a. What is the length of the cash conversion cycle...
Zocco Corporation has an inventory conversion period of 75 days, an average collection period of 38 days, and a payables deferral period of 30 days. a. What is the length of the cash conversion cycle...
McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 40 days...
A couple obtained a $20,000 mortgage loan at an interest rate of 10.5% compounded monthly. (Original principal equals to PV of all payments discounted at the interest rate on the loan contract) (1)...
What strategies and tactics are employed to manage strategic risks and uncertainties, including geopolitical instability, supply chain disruptions, and emerging competitive threats, while preserving...
How do strategic planners integrate ethical considerations and sustainability imperatives into strategic planning processes, balancing short-term financial objectives with long-term societal and...

In financial leverage, why not simply increase leverage as long as the firm is able to earn

Question:

Step by Step Answer:

While earnings per share will increase as long as the firm is able to earn more ...View the full answer

Fundamentals Of Financial Management

Students also viewed these Finance questions