MKT 425 FINAL EXAM NEW Summer 2016 PHOENIX

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MKT 425 FINAL EXAM NEW Summer 2016 PHOENIX

Financial leverage emphasizes the impact of using debt in the business. 
The contribution margin is equal to price per unit minus total costs per unit. 
Use of financial leverage must consider risk, not just maximizing profit. 
Managers who are risk averse and uncertain about the future would most likely minimize combined 
Cash breakeven analysis eliminates the depreciation expense and other non-cash charges from fixed 
The closer a firm is to its break-even point, the lower the degree of operating leverage will be. 

Financial leverage primarily affects the left-hand side of the balance sheet. 

Operating income is not the same thing as EBIT. 

Firms with cyclical sales should employ a high degree of leverage. 

An example of an adjustment for a cash break-even analysis would be adding back increases in 

Financial leverage breakeven occurs when return on total assets is equal to the cost of borrowed fun 

Liquidity ratios indicate how fast a firm can generate cash to pay bills. 

A banker or trade creditor is most concerned about a firm's profitability ratios. 

The DuPont system of analysis emphasizes that profit generated by assets can be derived by various 

Return on equity will not change if the firm increases its use of debt. 

A current ratio of 2 to 1 is always acceptable, for a company in any industry. 

During disinflation, stock prices tend to go up because the investor's required rate of return goes down. 

Intangible assets are becoming an important part of the assets in a company's financial statements 

Absolute values taken from financial statements are more useful than relative values. 

A company can improve their ROE by changing their capital structure. 

Times interest earned is an example of a profitability ratio.