The main disadvantage of financial leverage is that:
A. it increases the taxes of firms that use it.
B. it requires owners to invest more of their own money.
C. the cost of debt financing is now high.
D. it protects firms from predatory lending practices by financial institutions.
Answer: C
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Use this information for questions that refer to the World Tennis Ball (WTB) Company case.World Tennis Ball Co. (WTB) makes tennis balls and sells them only in the United States. Raul Fernandez, the firm's marketing manager, is comparing his firm's distribution with two major competitors.1) WTB sells its products through four regional distributors, who then sell to 22 sporting goods wholesalers. The wholesalers sell to a total of 7,000 retail outlets. From its website, WTB also sells directly to any customer who will purchase a minimum quantity of 24 tennis balls. WTB cooperates with members of its channel but maintains some control through its economic power and leadership. It helps to direct the activities of the whole channel and tries to avoid or resolve channel conflicts.2)
American Tennis Ball (ATB) is a competitor that sells through two distributors-each with half the country. The distributors then sell through six sporting goods wholesalers, and they, in turn, sell to 1,000 retail outlets (split between two national sporting goods chains and two general merchandise stores). ATB and its channel make little effort to work together. However, because of a relatively low level of competition between the distributors, the wholesalers, or the retail stores, each member of the channel gives the product special attention.3) National Tennis Ball (NTB) sells its products through only three tennis specialty wholesalers that sell only to tennis clubs. NTB actually owns the wholesale firms that handle its products. NTB's balls are only available at certain tennis clubs and NTB limits coverage to only one club in a particular geographic area.Which of these companies uses a corporate channel of distribution? A. World Tennis Ball B. American Tennis Ball C. Both World Tennis Ball and National Tennis Ball use a corporate channel. D. National Tennis Ball E. There is not enough information to tell which company uses a corporate channel of distribution.
Two of the most important clauses in a distributor contract are the performance and cancellation clauses
Indicate whether the statement is true or false
Many financial reports produced by organizations are nondiscretionary–publicly traded firms have no choice but to prepare income statements, tax returns, etc. Management reporting is often called discretionary reporting because it is not mandated, as is financial reporting. Is this a valid statement? Why or why not?
The overhead variance calculated as total budgeted overhead at the actual input production level minus total budgeted overhead at the standard hours allowed for actual output is the
a. efficiency variance. b. spending variance. c. volume variance. d. budget variance.