Financial Management - Study Mode
[#571] The use of preference share capital as against debt finance.
Correct Answer
(A) Reduces DFL
Explanation
Solution: The use of preference share capital as against debt finance reduces DFL. A degree of financial leverage (DFL) is a leverage ratio that measures the sensitivity of a company's earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure.
[#572] Firms that specialize in helping companies raise capital by selling securities are called ________.
Correct Answer
(B) investment banks
Explanation
Solution: Firms that specialize in helping companies raise capital by selling securities are called investment banks. An investment bank (IB) is a financial intermediary that performs a variety of services.
[#573] The Degree of Financial Leverage (DFL)
Correct Answer
(A) Measures financial risk of the firm
Explanation
Solution: The Degree of Financial Leverage (DFL) measures financial risk of the firm. The degree of financial leverage (DFL) measures the percentage change in EPS for a unit change in operating income, also known as earnings before interest and taxes (EBIT).
[#574] Financial assets ______.
Correct Answer
(A) directly contribute to the country's productive capacity
Explanation
Solution: Financial assets directly contribute to the country's productive capacity. A financial asset is a liquid asset that gets its value from a contractual right or ownership claim.
[#575] Stocks which has lower book for market ratio are considered as
Correct Answer
(C) less risky
Explanation
Solution: Stocks which has lower book for market ratio are considered as less risky. A company whose stock is trading at a discount on its book value is not necessarily cheap. In particular, you should expect companies that have low returns on equity, high risk and low growth potential to trade at low price to book ratios.