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Ratio of financial leverage a direct function

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Reference no: EM1334692

1) You want to purchase a Car that costs $40,000. You want to finance as much of the purchase as possible with a 5-year bank loan at 12% compounded monthly, but can only afford loan payments of $750 per month. How much will you need as a down payment to buy the boat? (Round to the nearest dollar)

a. $3,523
b. $4,637
c. $5,147
d. $6,284

2) One year ago a $1,000 face value 6% coupon bond was selling for $918.93. Since then, the market return decreased by two percentage points. The bond pays interest semiannually and now has four years to maturity. The bond's price today is:

a. $1,035.46
b. $1,053.27
c. $1,000.00
d. $932.67

3) Financial leverage is a direct function of the ratio of:

a. EAT to sales.
b. EBIT to sales.
c. interest expense to EBIT.
d. EAT to the number of shares of common stock.

Reference no: EM1334692

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