Financial Management - Study Mode

[#391] The value of EBIT at which EPS is equal to zero is known as ____________.
Correct Answer

(B) Financial break-even point

Explanation

Solution: The value of EBIT at which EPS is equal to zero is known as Financial break-even point. Financial break-even point is the level of earnings before interest and taxes that will result in zero net income or zero earnings per share. It equals the company's interest expense plus dividends paid to preferred stock-holders and associated taxes.

[#392] A model for optimizing the selection of securities is the ______ model.
Correct Answer

(C) Markowitz

Explanation

Solution: A model for optimizing the selection of securities is the Markowitz model. Harry Markowitz model (HM model), also known as Mean-Variance Model because it is based on the expected returns (mean) and the standard deviation (variance) of different portfolios, helps to make the most efficient selection by analyzing various portfolios of the given assets.

[#393] Degree of financial leverage is a measure of relationship between ___________.
Correct Answer

(A) EPS and EBIT

Explanation

Solution: Degree of financial leverage is a measure of relationship between EPS and EBIT. 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). This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be.

[#394] The Markowitz model identifies the efficient set of portfolios, which offers the ____________.
Correct Answer

(A) highest return for any given level of risk or the lowest risk for any given level of return

Explanation

Solution: The Markowitz model identifies the efficient set of portfolios, which offers the highest return for any given level of risk or the lowest risk for any given level of return. Harry Markowitz model (HM model), also known as Mean-Variance Model because it is based on the expected returns (mean) and the standard deviation (variance) of different portfolios, helps to make the most efficient selection by analyzing various portfolios of the given assets.

[#395] Operating leverage examines.
Correct Answer

(A) The effect of the change in the quantity on EBIT

Explanation

Solution: Operating leverage examines the effect of the change in the quantity on EBIT. Operating leverage is a cost-accounting formula that measures the degree to which a firm or project can increase operating income by increasing revenue. A business that generates sales with a high gross margin and low variable costs has high operating leverage.