Leverage, risk
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When financial leverage is used, the graphical probability distribution of net income would tend to be more peaked than a destribution where no leverage is present, other things held constant
From an operational standpoint the goal of maintaining financial flexibility translates into maintaining adequate reserve borrowing capacity
While business risk varies from one industry to another and can change over time, it affects all firms equally within a particular industry
The optimal capital structure is the one that maximizes EBIT and this always calls for a debt to assets ratio which is lower than the one that maximizes expected EPS
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6.EBIT
One statement is correct or all are false
When financial leverage is used, the graphical probability distribution of net income would tend to be more peaked than a distribution where no leverage is present, other things held constant
From an operational standpoint the goal of maintaining financial flexibility translates into maintaining adequate reserve borrowing capacity
While business risk varies from one industry to another and can change over time, it affects all firms equally within a particular ...
Purchase this Solution
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