Finance:
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Chapter 13
1. Operating leverage is change in sales (small), which triggers a change in operating income. They are caused by fixed cost in the operation firm. A firm with a high operating leverage will see an EBIT increase and sales. The negative aspect is if the unit sales drop EBIT will decrease by a percentage greater than sales.
2. Yes, the total degree of business risk that a company faces is a function of both sales and the degree of operating cost.
3. Financial leverage is the additional volatility of net income caused by presence of fixed cost funds in the firm?s capital structure. Financial leverage can be volatility of the NI if the income changes. There is always a percentage of business risk involved.
4. I believe the majority of your local mom& pop stores, mainly smaller stores with limited customer.
5. Major corporations such as Food Lion and Sear Roebuck.
6. Publicly owned corporations that has been brought out by investors, using a large amount of borrowed money. Either the investors can enjoy numerous returns or go into serious losses.
7. The additional risk causes lenders and owners to want a higher rate of return.
Chapter 14
1. Real assets back the mortgage bond, while a debenture bonds are backed by a firm?s ability and willingness to pay.
2. The issuing company makes regular contributions to a fund that is used to buy back outstanding bonds.
3. Some of these assurances may be limitations on future borrowings, restrictions on dividends, and minimum levels of working capital maintained.
4. The conversion ratio is the number of shares of common stock that investor would get if the convertible bond were converted. Also, the conversion value is the amounts of money bond owners receive if they were convert the bond to common stock and then sell the common stock. The value coming from the interest and principals is called the convertible bond?s straight bond value.
5. A conversion value equals $300.00.
6. A putable bond is a bond that can be cashed in for maturity at the option of the bond?s owner and the same for the callable bond except the bond?s owner is reversed. They usually redeem fixed rate bonds if interest rates have risen.
Chapter 15
1. Private Corporation does not report financial information to the government through the SEC, while the public corporations do.
2. Other board members using shareholders votes vote members of the board in. The board owes it primary allegiance to the stockholders.
3. The disadvantages maybe when the stocks are going public there are no previous market activity to judge the shares worth. The advantage is when the stocks are public every trader already knows their possible worth.
4. The investor must be given a prospectus, which is disclosed document that describes the security and the issuing company.
5. Preemptive rights give the stockholder the option to buy additional shares at a specified price until a given expiration date.
6. This is because if the warrant is exercised the exercise value is small. They are seldom exercised even if the value is high.
7. If the price of the common stock increases the exercise value increases with leverage and time limit.
Chapter 13
1. Operating leverage is change in sales (small), which triggers a change in operating income. They are caused by fixed cost in the operation firm. A firm with a high operating leverage will see an EBIT increase and sales. The negative aspect is if the unit sales drop EBIT will decrease by a percentage greater than sales.
2. Yes, the total degree of business risk that a company faces is a function of both sales and the degree of operating cost.
3. Financial leverage is the additional volatility of net income caused by presence of fixed cost funds in the firm?s capital structure. Financial leverage can be volatility of the NI if the income changes. There is always a percentage of business risk involved.
4. I believe the majority of your local mom& pop stores, mainly smaller stores with limited customer.
5. Major corporations such as Food Lion and Sear Roebuck.
6. Publicly owned corporations that has been brought out by investors, using a large amount of borrowed money. Either the investors can enjoy numerous returns or go into serious losses.
7. The additional risk causes lenders and owners to want a higher rate of return.
Chapter 14
1. Real assets back the mortgage bond, while a debenture bonds are backed by a firm?s ability and willingness to pay.
2. The issuing company makes regular contributions to a fund that is used to buy back outstanding bonds.
3. Some of these assurances may be limitations on future borrowings, restrictions on dividends, and minimum levels of working capital maintained.
4. The conversion ratio is the number of shares of common stock that investor would get if the convertible bond were converted. Also, the conversion value is the amounts of money bond owners receive if they were convert the bond to common stock and then sell the common stock. The value coming from the interest and principals is called the convertible bond?s straight bond value.
5. A conversion value equals $300.00.
6. A putable bond is a bond that can be cashed in for maturity at the option of the bond?s owner and the same for the callable bond except the bond?s owner is reversed. They usually redeem fixed rate bonds if interest rates have risen.
Chapter 15
1. Private Corporation does not report financial information to the government through the SEC, while the public corporations do.
2. Other board members using shareholders votes vote members of the board in. The board owes it primary allegiance to the stockholders.
3. The disadvantages maybe when the stocks are going public there are no previous market activity to judge the shares worth. The advantage is when the stocks are public every trader already knows their possible worth.
4. The investor must be given a prospectus, which is disclosed document that describes the security and the issuing company.
5. Preemptive rights give the stockholder the option to buy additional shares at a specified price until a given expiration date.
6. This is because if the warrant is exercised the exercise value is small. They are seldom exercised even if the value is high.
7. If the price of the common stock increases the exercise value increases with leverage and time limit.
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