Financial Management - Study Mode

[#416] When a company uses increased fixed cost for production, this is an example of what type of leverage.
Correct Answer

(A) operating leverage

Explanation

Solution: When a company uses increased fixed cost for production, this is an example of operating leverage. 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.

[#417] Paid dividend is Rs 20 and dividend yield is 40% then current price would be
Correct Answer

(C) Rs 50.00

Explanation

Solution: Current price = Paid dividend / Dividend yield percentage = Rs. 20 / 40% = Rs. 50.00

[#418] Preferred stock dividends must be paid on common stock and must have
Correct Answer

(A) fixed amount of dividends

Explanation

Solution: Preferred stock dividends must be paid on common stock and must have fixed amount of dividends. Preferred dividends are the dividends that are accrued paid on a company's preferred stock. Any time a company pays dividends, preferred shareholders have priority over common shareholders, which means dividends must always be paid to preferred shareholders before they are paid to common shareholders.

[#419] Constant growth model would not be used in condition if growth rate is
Correct Answer

(D) greater than realized rate of return

Explanation

Solution: Constant growth model would not be used in condition if growth rate is greater than realized rate of return. A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external factors.

[#420] Cash flow which is available for all investors of company is classified as
Correct Answer

(D) free cash flow

Explanation

Solution: Cash flow which is available for all investors of company is classified as free cash flow. Free cash flow represents the cash a company generates after cash outflows to support operations and maintain its capital assets.