Financial Management - Study Mode

[#1151] Mutual funds may be affiliated with an underwriter. This means____________.
Correct Answer

(A) the underwriter has an exclusive right to distribute shares

Explanation

Solution: Mutual funds may be affiliated with an underwriter. This means the underwriter has an exclusive right to distribute shares. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.

[#1152] Operating leverage = ______.
Correct Answer

(A) contribution / EBIT

Explanation

Solution: Operating leverage = contribution / EBIT. A firm's operating leverage is defined as the percentage change in the firm's operating earnings (EBIT less any non-operating income), that accompanies a percentage change in the contribution margin. That is, the operating income elasticity with respect to the contribution margin.

[#1153] The ___________ is a window through which the investor can see the company.
Correct Answer

(C) Prospectus

Explanation

Solution: The Prospectus is a window through which the investor can see the company. A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public.

[#1154] According to the traditional approach cost of capital affected by?
Correct Answer

(A) debt-equity mix

Explanation

Solution: The traditional approach to capital structure advocates that there is a right combination of equity and debt in the capital structure, at which the market value of a firm is maximum. As per this approach, debt should exist in the capital structure only up to a specific point, beyond which, any increase in leverage would result in the reduction in value of the firm.

[#1155] For which of the following factors are the debentures more attractive to the investors?
Correct Answer

(D) All the above.

Explanation

Solution: The principal is redeemable at maturity, A debenture-holder enjoys prior claim on the assets of the company over its shareholders in the event of liquidation and trustee is appointed to preserve the interest of the debenture holders are the factors why the debentures more attractive to the investors.