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What is the operating leverage effect and what causes it? What are the potential benefits and negative consequences of high operating leverage?
The operating leverage effect is the fact whereby a small change in sales activates a relatively large change in operating income. It is happened by the presence of fixed operating costs. The potential paybacks are that if sales are rising operating income will rise more quickly. The negative penalties are that falling sales will happen operating income to fall more quickly including negative values.
BLACKWATER PLC (a) Calculation of NPV EV = (0.3 × 0.50) + (0.5 × 1.40) + (0.2 × 2.0) = 0.15 + 0.70 + 0.40 = 1.25 (i.e.) $ 1.25m To conclude the NPV of the project
Two companies are identical in all aspects except in the debt-equity profile. Company X has 14% debentures worth Rs. 25,00,000 whereas company Y does not have any debt. Both compan
Is it possible to use a constant WACC in the valuation of a company with a changing debt? Theoretically, the WACC can only be constant if a constant debt is expected. If the de
Net Present Value (NPV) In corporate finance, the current value (the value of cash to be received in the future expressed in today's dollars) of an investment in excess of the
Q. Working capital cycle? In a manufacturing concern the working capital cycle is start with the purchase of the raw material and ends with the realization of the cash from the
Q. What do you mean by Time value of money ? The concept of TVM refers to the fact that the money received today is different in its worth from the money receivable at some oth
What does the “weight” refer to in the weighted average cost of capital? The weight considered to in weighted average cost of capital consider the portion of the total capital in
For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject? For a given MCC and IOS, all independent pro
Q. Working capital management? Every business needs funds for the two purposes for its establishments and to carry out day to day operations. Long terms funds are required to c
Q. Problem in the determine of cost of the capital? Conceptual controversies regarding the relationship between the cost of the capital and the capital structure: different the
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