Chapter 5 Flashcards
1
Q
Financial leverage
A
the use of borrowed money to increase production volume and thus sales and earnings
- ratio of total debt : total assets
2
Q
Operating leverage
A
combination of fixed, variable and semivariable costs
3
Q
break even
A
total costs = total revenue
4
Q
too much financial leverage bad:
A
- lenders will perceive greater risk and increase risk
2. common stockholders may drive down the price of the stock
5
Q
financial leverage recommend for firms that are: (3)
A
- stable industry
- positive stage of growth
- favourable economic conditions