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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.
Define in the Modigliani-Miller equation (MM equation), why is the market value of the levered firm greater as compared to the market value of an equivalent unlevered firm? Th
Internal business risk associated with the operational efficiency of the firm. The operational efficiency differs from company to company. The efficiency of operation is reflected
Explain the bird in the hand theory of cash dividends. The bird in the hand dividends theory state that dividends received now are better than a promise of future dividends. U
Nominal spread of a non-treasury bond can be defined as the difference between the bond's yield and the yield to maturity of a benchmark treasury coupon security.
Illustrate the process of calculating call/ put options yields Issuing corporation will use provision if interest rates fall substantially below coupon rates offered on the se
Q. Classification of Working Capital? Classification of Working Capital: - Working Capital is able to be classified in two ways firstly on the basis of concept and secondly on
The managing directors of three profitable listed companies discussed their companies'' dividend policies at a business lunch. Company A; has deliberately paid no dividends for th
In all previous illustrations, we assumed that coupon payments are paid on annual basis. However, most of the bonds carry interest payment semi-annually. Semi-ann
how would you judge the potential
Leverages 'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's oper
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