Assertion (A): The primary motive of a company in using financial leverage is to magnity shareholder's return under favourable economic conditions.
Reason (R): To magnify shareholder's return fixed charges, funds can be obtained at a cost higher than the firm's rate of return on net assets.
A. (A) is correct, and (R) is the correct explanation of (A)
B. (A) is correct, but (R) is incorrect
C. (R) is correct, but (A) is incorrect
D. Both (A) and (R) are incorrect
Answer: Option B
This Question Belongs to Commerce >> Business Finance
The appropriate ratio for indicating liquidity crisis is
A. Operating ratio
B. Sales turnover ratio
C. Current ratio
D. Acid test ratio
A. Net present value method
B. Internal rate of return method
C. Profitablity index method
D. None of the above
A. a-4, b-3, c-1, d-2
B. a-3, b-4, c-1, d-2
C. a-2, b-3, c-1, d-4
D. a-3, b-2, c-4, d-1
Which one of the following assumptions is not included in the James E. Walter Valuation model?
A. All financing by retained earnings only
B. No change in the key variables such as EPS and DPS
C. The firm has finite life
D. All earnings are either distributed as dividends or invested internally immediately
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