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Molodets [167]
3 years ago
13

“EBIT is generally considered to be independent of financial leverage, because EBIT is the result of a firm’s operating effectiv

eness. However, with an excessive debt levels, EBIT might actually be influenced by financial leverage.”
Comment on the statement above.
Business
1 answer:
Arturiano [62]3 years ago
6 0

Answer:

The answer is below

Explanation:

EBIT is known as an accounting measure to determine the profit level of a firm. It is an acronym of Earnings Before Interest and Taxes.

EBIT is generally considered to be independent of financial leverage because EBIT is the result of a firm’s operating effectiveness.

This is true because, EBIT is based on the firm's level of sales and cost of operation, of which financial leverage has no effects on it.

However, with excessive debt levels, EBIT might be influenced by financial leverage.

This implies that even though the financial leverage of a firm has no direct influence on EBIT, in a situation whereby a firm is operating at huge deficits, every aspect of the film will be concerned. This will include staff, customers, investors, and operational activities, thereby affecting the firm's sales and cost of operation. As a result, this will ultimately affect the firm's EBIT.

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3 years ago
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2. Stock B has an expected return of 14% and
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Answer:

B; it offers an expected excess return of 1.8%

Explanation:

Here are the options :

A; it offers an expected excess return of .2%A; it offers an expected excess return of 2.2%B; it offers an expected excess return of 1.8%B; it offers an expected return of 2.4%

to determine which stock is the better buy, we have to calculate the expected return of the stocks using CAPM

According to the capital asset price model: Expected rate of return = risk free + beta x (market rate of return - risk free rate of return)

Stock A = 5% + 1.2(9% - 5%) = 9.8%

Stock B = 5% + 1.8(9% - 5%) = 12.20%

The next step is to determine the excess return

stated expected return - calculated expected return = excess return

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3 years ago
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Profit (loss) 4.611

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