Many Business Decisions Are Made in Hopes of Improving a Firm's

question 296

Multiple Choice

Many business decisions are made in hopes of improving a firm's "bottom line".Which of the following financial statements will reflect a firm's "bottom line?"

• A)income statement
• B)balance sheet
• C)cash flow statement
• D)trial balance

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Definitions:

Financial Leverage

The use of borrowed money (debt) to amplify the potential return on investment.

Break-even EBIT

The level of earnings before interest and taxes (EBIT) at which a company neither makes a profit nor incurs a loss.

Target Capital Structure

Refers to the mix of debt, preferred stock, and common equity that a company aims to hold to fund its operations and maximize its value.

WACC

Weighted Average Cost of Capital - a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.