Questions from Financial Management

Q: Relate business and financial risk as defined in this chapter to the

Relate business and financial risk as defined in this chapter to the risks described in Chapter 9.

Q: Why are ROE and EPS such important measures of performance to investors

Why are ROE and EPS such important measures of performance to investors?

Q: Both business risk and financial risk would exist with or without either

Both business risk and financial risk would exist with or without either type of leverage. Leverage just makes them more significant. Are these statements true or false? Explain.

Q: Briefly explain the pros and cons of financial leverage. In other

Briefly explain the pros and cons of financial leverage. In other words, what are its benefits, and what are the costs that come along with those benefits?

Q: Explain in words the ROCE test for the advisability of adding leverage

Explain in words the ROCE test for the advisability of adding leverage. That is, what is the test really telling us? When will it indicate a company is doing the wrong thing?

Q: Retained earnings are generated by the firm's internal operations and are immediately

Retained earnings are generated by the firm's internal operations and are immediately reinvested to earn more money for the company and its shareholders. Therefore, such funds have zero cost to the co...

Q: What is the biggest problem associated with financing secured by inventory?

What is the biggest problem associated with financing secured by inventory? How is it addressed in practice?

Q: Dividends are said to be the basis for the value of stocks

Dividends are said to be the basis for the value of stocks. If that's true, how do we explain the fact that companies that pay no dividends often have substantial market value? (Such companies are u...

Q: Explain the difference between a fixed and a variable cost. How

Explain the difference between a fixed and a variable cost. How do these concepts change as the time horizon lengthens? In other words, are the same things fixed over a 5-year planning period that a...

Q: Why do labor-intensive processes involve less operating leverage than automated

Why do labor-intensive processes involve less operating leverage than automated processes? What fixed costs are associated with automation? Why can't those costs be eliminated by just selling the ma...