You Own a Car Dealership and Pay All of Your

question 116

Multiple Choice

You own a car dealership and pay all of your sales people a flat salary. As a result, they don't work very hard to generate sales. This is an example of

• A) adverse selection.
• B) moral hazard.
• C) logrolling.
• D) an externality.

Calculate and interpret the net asset value (NAV) of mutual funds.

Differentiate between open-end and closed-end mutual funds, including their issuance and trading characteristics.

Recognize the role and performance comparison of actively managed funds vs. market indexes.

Analyze the impact of fees and distributions on mutual fund returns.

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Definitions:

Financial Leverage

The use of borrowed funds with the intent to increase the return on equity.

EBIT-EPS Lines

Graphical representations that show the impact of financing choices, especially debt and equity, on a company's earnings per share (EPS) for various levels of earnings before interest and taxes (EBIT).

EPS

Earnings per share; a measure of a company's profitability calculated by dividing its net income by the number of outstanding shares.

EBIT

Earnings Before Interest and Taxes, a profitability measure for companies that doesn't include costs associated with taxes or interest.