A firm with high operating leverage has:
A) low fixed costs in its production process.
B) high variable costs in its production process.
C) high fixed costs in its production process.
D) high total costs per unit.
E) low total costs per unit.
C) high fixed costs in its production process.
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Of the internal stakeholders, the group that is the most critical to the success of a firm would be:
A) shareholders B) employees C) the labor union D) customers
According to the text, experiments can be described in terms of all of the following EXCEPT:
A) independent variables. B) interdependent variables. C) dependent variables. D) extraneous variables. E) B and D
Green Planet, Inc., a manufacturer of air filter systems for industrial facilities, is considering the addition of a new system to its current product line. The following data has been forecasted:
1. The market value of the firm’s debt is $300,000, and it has $150,000 in marketable securities. The company also has 10,000 shares of preferred stock that pay an annual dividend of $0.75 per share. Investors require a rate of return of 7% on preferred stocks of similar risk. The firm has 100,000 shares of common stock outstanding, and its weighted average cost of capital is 12%. The expected tax rate is 35% in the next two years and 40% after that.
a) Calculate the free cash flow for each of the next four years.
b) After 2021 the firm’s free cash flow is expected to grow at 5% per year indefinitely. What is the value of the stock today?
c) Assume that after 2021 the firm’s free cash flow is expected to grow at 9% per year for four years. After that time, the firm’s free cash flow will grow at 5% indefinitely. Using the two-stage dividend growth model, what is the value of the stock? Calculate your solution twice, first using equation 9-5 on page 260 and then using the FAME_TwoStageValue user-defined function.
e) Assume that the transition between 9% and 5% will be gradual rather than instantaneous. The forecasted transition period is 3 years. Using the H Model, what is the value of the stock? Calculate your solution twice, first using equation 9-8 on page 264 and then using the FAME_HModelValue user-defined function.
Source documents provide the evidence and data for accounting transactions
Indicate whether the statement is true or false