The Graphical Probability Distribution of Net Income, When Financial Leverage

question 23

True/False

The graphical probability distribution of net income, when financial leverage is used, would tend to be more peaked than a distribution where no leverage is present, other things held constant.

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity.

Straight-Line Depreciation

This method evenly allocates the cost of an asset over its useful life.

After-Tax Discount Rate

The discount rate used in capital budgeting that accounts for taxes, representing the net cost of capital after tax considerations.

Straight-Line Depreciation

A technique for spreading out the expense of a physical asset evenly over its operational lifespan.