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Option 2 is correct - There is a higher probability of experiencing Financial distress.</h3>
Firms with volatile operating income tend to have lower debt ratios because there is a higher probability of experiencing financial distress.
Financial distress is a condition in which a company or individual cannot generate sufficient revenues or income, making it unable to meet or pay its financial obligations. This is generally due to high fixed costs, a large degree of illiquid assets, or revenues sensitive to economic downturns.
Following reasons can lead to financial distress in a firm.
- Cash flows - The first sign that things are going wrong is a constant shortage of cash. The old adage that cash is king exists for a reason
- Falling margins and poor profits - Experienced entrepreneurs have learnt that for long-term survival what matters are profits, not only sales. Poor profits are usually the first indicators that a business is not doing well.
- Poor sales growth or decline in revenues - When there is no sales growth despite extreme marketing activities, this could indicate a lack of customer acceptance, which is key to any business success.
- Extended payment days - Another sign of possible trouble is a rise in either creditor or debtor payment days. If business has to delay payments to its creditors, this can force some suppliers to stop supplying
- Difficulty in raising capital - If a company is constantly borrowing and asking its investors to inject more capital, this is an underlying sign that it is increasingly finding it difficult to self-sustain.
Hence, Firms with volatile operating income tend to have lower debt ratios because there is a higher probability of experiencing financial distress.
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Answer:
Payback =1.53 years
Explanation:
The annual cash-flow figure that is to be used in this calculation should not include depreciation as depreciation is a non-cash item. Net operating income from the project is $115,000 and to get to annual cash-flows, depreciation should be added back.
Annual cash-flows for each of the 6 years would therefore be:
The scrap value would be expected at the end of the project i.e end of year 6.
Year Cash-flow Balance
0 (225,000) (225,000)
1 147,000 (78,000)
2 147,000 69,000
By end of year 2, the company has already recovered the $225,000 initial investment as seen through the positive cumulative balance
Payback = Years With Negative Cumulative Cash-flow Balance + 
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If JJ camera does not accommodate Meg's needs, and she is otherwise qualified for the job, JJ camera must demonstrate that the accommodations would create (a) UNDUE HARDSHIP for the company.
Undue hardship refers to an action that will lead to increase in expense or difficulty on company or the employer. It is an accommodating action. It is not necessary for an employer to accommodate an undue hardship. If the company needs to accommodate an undue hardship, it should look for some other accommodation that does not impose such hardship on the company.
