Consider the following environmental and firm characteristics and determine their effect on a firm's business or...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider the following environmental and firm characteristics and determine their effect on a firm's business or financial risk. True or False: Firms operating in more price-competitive industries, or exhibiting lower levels of market power, generally exhibit lower levels of business risk, all other things being equal. This statement is: False True The use of financial leverage, or fixed-cost sources of capital, involves a trade-off between its effect on the firm's shareholders and its effect on the riskiness of the firm. Read each statement below, and indicate whether Statement 1, Statement 2, or both statements are correct, or neither statement is correct. Statement 1: In general, the more business risk that a firm experiences, the more financial leverage the firm will want to employ in its capital structure. Statement 2: When its earnings are decreasing, the use of greater levels of debt capital in a firm's capital structure magnifies the negative return earned by the firm's shareholders beyond that earned by the shareholders of an otherwise identical unlevered firm. Which response is correct? Only Statement 2 is correct. Only Statement 1 is correct. Both statements are correct. Neither statement is correct. Consider the following environmental and firm characteristics and determine their effect on a firm's business or financial risk. True or False: Firms operating in more price-competitive industries, or exhibiting lower levels of market power, generally exhibit lower levels of business risk, all other things being equal. This statement is: False True The use of financial leverage, or fixed-cost sources of capital, involves a trade-off between its effect on the firm's shareholders and its effect on the riskiness of the firm. Read each statement below, and indicate whether Statement 1, Statement 2, or both statements are correct, or neither statement is correct. Statement 1: In general, the more business risk that a firm experiences, the more financial leverage the firm will want to employ in its capital structure. Statement 2: When its earnings are decreasing, the use of greater levels of debt capital in a firm's capital structure magnifies the negative return earned by the firm's shareholders beyond that earned by the shareholders of an otherwise identical unlevered firm. Which response is correct? Only Statement 2 is correct. Only Statement 1 is correct. Both statements are correct. Neither statement is correct.
Expert Answer:
Answer rating: 100% (QA)
Responses to your questions 1 Firms business risk in pricecompetitive industries Statement True Firm... View the full answer
Related Book For
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 8% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bonds...
-
Two point charges are on the x axis. Charge 1 is +q and is located at x = -1.0 m; charge 2 is -2q and is located at x = 1.0 m. Make sketches of the equipotential surfaces for this system (a) Out to a...
-
At 9:13 A.M., a sports car is traveling 35 miles per hour. Two minutes later, the car is traveling 85 miles per hour. Prove that at some time during this two-minute interval, the cars acceleration is...
-
The agreement contained a liquidated damages clause that held, Should Employee voluntarily terminate or the Employer terminates his/her employment within one year of executing this Agreement,...
-
Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $500,000. A new raw material is available that will decrease the variable costs...
-
On the first day of their vacation the Morales family drove 312 miles in 6 hours at that rate how far will they travel the next day if they drive for 8 hours
-
Question # 8. Describe the aspect of electronic governance of todays internet and its repercussions.
-
A small sphere, with initial temperature \(T\), is immersed in an ideal Boltzmannian gas at temperature \(T_{0}\). Assuming that the molecules incident on the sphere are first absorbed and then...
-
Calculate the contribution of the first excited electronic state, namely \({ }^{1} \Delta\) with \(g_{e}=2\), of the \(\mathrm{O}_{2}\) molecule toward the Helmholtz free energy and the specific heat...
-
By considering the order of magnitude of the occupation numbers \(\left\langle n_{\varepsilon}ightangle\), show that it makes no difference to the final results of Section 7.1 if we combine a finite...
-
Last year, Miley decided to terminate the S corporation election of her solely owned corporation on October 17, 2018 (effective immediately), in preparation for taking it public. At the time of the...
-
In the data set on wolf upper jaws (Practice Problem 6), each measurement was actually the average of two measurements made on the left and right sides of the jaw of an individual wolf. Thus, a total...
-
Company C was established two years ago by issuing 3,000,000 common shares at $8 per share, and 2,000,000 preferred shares at $8 per share. The preferred shares are cumulative with the stated...
-
Kenneth Hubbard has prepared the following list of statements about managerial accounting and financial accounting. 1. Financial accounting focuses on providing information to internal users. 2....
-
Distinguish between entity-wide and transaction controls. Which components of internal control are typically entity-wide controls? Which components of internal control are typically transaction...
-
How would the following factors affect the auditor's assessment of the internal control effectiveness for marketable securities? Assume that the company's investment in marketable securities is...
-
In April 2010, the PCAOB issued a disciplinary order instituting disciplinary proceedings, making findings, and imposing sanctions in the case of Robert T. Taylor, CPA (both the firm and the...
-
SpeedBurn Ltd manufactures DVD burners and is considering expanding production. A distributor has asked the company to produce a special order of 3000 DVD burners. The burners will be sold using a...
-
A to Z Pty Ltd has provided the following planned perunit cost and sales data for the year ended 30 June 2020. Fixed factory overhead costs are $1 056 000 per year, and the annual fixed selling and...
-
Aussie Sporting Company Pty Ltd produces two types of sporting balls: basketballs and footballs. During the year ended 30 June 2019 it sold the balls in the proportion of three basketballs for every...
Study smarter with the SolutionInn App