A) An increase in fixed costs, (holding sales and variable costs constant) will reduce the company's degree of operating leverage.
B) If a firm's degree of operating leverage increases, its degree of financial leverage must also have increased.
C) An increase in interest expense will reduce the company's degree of financial leverage.
D) If the company has no debt outstanding, then its degree of total leverage equals its degree of operating leverage.
E) If the company has no debt outstanding, then its degree of total leverage equals its degree of financial leverage.
G) D) and E)
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A) $1.66
B) $1.83
C) $1.92
D) $1.74
E) $1.57
G) B) and E)
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A
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A) $797.54
B) $839.52
C) $883.70
D) $930.21
E) $976.72
G) C) and D)
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D
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A) If sales increase 10% for both companies, then Company D will have a larger percentage increase in its operating income (EBIT) .
B) The two companies have the same degree of total leverage.
C) If sales increase 10% for both companies, then Company D will have a larger percentage increase in its net income.
D) If EBIT increases 10% for both companies, then Company D's net income will rise by more than 10%, while Company E's net income will rise by less than 10%.
E) Company E has a higher degree of financial leverage.
G) A) and C)
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A) Yes; its expected return is greater than the firm's WACC.
B) Yes; the project's risk-adjusted required return is less than its expected return.
C) No; a 50% increase in beta risk gives a risk-adjusted required return of 24%.
D) No; the project's risk-adjusted required return is 2% above its expected return.
E) No; the project's risk-adjusted required return is 1% above its expected return.
G) B) and E)
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A) $60,980
B) $70,946
C) $67,568
D) $57,931
E) $64,189
G) B) and C)
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A) Bond A sells at a discount, while Bond B sells at a premium.
B) If the yield to maturity on each bond falls to 7%, Bond C will have the largest percentage increase in its price.
C) Bond C has the most reinvestment risk.
D) Bond C has the most price risk.
E) If the yield to maturity is constant, the price of Bond A will continue to increase over its life until it finally sells at par.
G) B) and E)
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A) 6.0000
B) 5.4150
C) 5.7000
D) 4.8870
E) 5.1443
G) All of the above
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A) $1,112.99
B) $1,236.66
C) $1,374.06
D) $1,526.74
E) $1,679.41
G) B) and E)
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A) $13.95
B) $14.68
C) $15.42
D) $16.19
E) $17.00
G) A) and B)
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A) $2.24
B) $2.35
C) $2.47
D) $2.59
E) $2.72
G) D) and E)
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A) $7.86
B) $7.47
C) $9.15
D) $8.27
E) $8.71
G) C) and E)
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A) The percentage change in EBIT will equal the percentage change in net income.
B) Since debt is used, the degree of operating leverage must be greater than 1.
C) The percentage change in operating income will be less than the percentage change in net income.
D) The percentage change in operating income (EBIT) resulting from the change in sales will exceed the percentage change in net income.
E) The percentage change in net income relative to the percentage change in sales (and in EBIT) will not depend on the interest rate paid on the debt.
G) A) and E)
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A) $1,900
B) $2,000
C) $2,100
D) $2,205
E) $2,315
G) A) and E)
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A) $150,000
B) $142,857
C) $128,929
D) $135,714
E) $122,482
G) B) and E)
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A) If interest rates increase, a 10-year zero coupon bond's price will drop by a greater percentage than will a 10-year, 8% coupon bond.
B) One nice thing about zero coupon bonds is that individual investors do not have to pay any taxes on a zero coupon bond until it matures, even if they are not holding the bonds as part of a tax-deferred account.
C) If a bond with a sinking fund provision has a yield to maturity greater than its coupon rate, the issuing company would prefer to comply with the sinking fund by calling the bonds in at par rather than buying the bonds back in the open market.
D) Because of the IRS's tax treatment of zero coupon bonds, pension funds and other tax-exempt entities rarely, if ever, invest in zero coupon bonds.
E) Interest must be paid on a zero coupon bond's accrued value, but while the first year's interest is taxable at the ordinary income tax rate, subsequent years are taxed at the long-term capital gains rate (since they are received after more than a year) .
G) None of the above
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A) 5.76%
B) 6.06%
C) 6.38%
D) 6.72%
E) 7.06%
G) A) and C)
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D
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A) $3,366,714
B) $3,453,040
C) $3,541,580
D) $3,632,390
E) $3,725,528
G) C) and D)
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A) A change in quantity demanded will produce the same percentage change in EBIT as an identical change in price per unit of output, other things held constant.
B) The DOL relates the change in net income to the change in operating income.
C) If the firm has no debt, the DOL will equal 1.
D) The closer the firm is operating to the breakeven quantity, the smaller the DOL.
E) The DOL is not a fixed number for a given firm, but will depend upon the time zero values of the economic variable Q (Quantity) , P (Price) , and V (Volume) .
G) A) and B)
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A) $55,361.08
B) $58,274.83
C) $61,188.57
D) $64,247.99
E) $67,460.39
G) A) and E)
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