Which of the Following Are Practical Difficulties Associated with Capital

question 42

Multiple Choice

Which of the following are practical difficulties associated with capital structure and degree of leverage analyses?

• A)It is nearly impossible to determine exactly how P/E ratios or equity capitalization rates (rs values) are affected by different degrees of financial leverage.
• B)Managers' attitudes toward risk differ and some managers may set a target capital structure other than the one that would maximize stock price.
• C)Managers often have a responsibility to provide continuous service; they must preserve the long-run viability of the enterprise.Thus, the goal of employing leverage to maximize short-run stock price and minimize capital cost may conflict with long-run viability.
• D)All of the above.
• E)None of the above represent a serious impediment to the practical application of leverage analysis to capital structure determination.

Understand the concept of binomial probability and its approximation by the normal distribution.

Recognize the conditions under which the normal approximation to the binomial distribution is appropriate.

Calculate probabilities using the normal approximation to binomial distribution.

Determine when to apply continuity correction in normal approximation.

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Definitions:

Successful Formulation

The process of effectively creating or devising plans, strategies, or products that achieve desired outcomes or objectives.

Compensation Strategy

A plan or approach developed by an organization to determine how to use compensation and benefits effectively to attract, retain, and motivate employees.

Job Evaluations

The systematic process of determining the relative worth of jobs within an organization in order to establish a fair and equitable wage and salary structure.

Appeal Mechanisms

Formal processes within organizations that allow employees to contest decisions or policies that they feel negatively affect them.