If the Present Value of the Cash Flow X Is

question 89

Multiple Choice

If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is:

• A) $240
• B) $160
• C) $80
• D) $400

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Definitions:

Financial Leverage

The use of borrowed funds with a fixed cost to enhance the potential return on investment.

Bankruptcy Risk

The risk that a company will be unable to meet its financial obligations and thus may have to declare bankruptcy.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in revenue, indicating the level of fixed versus variable costs.

Financial Leverage

The use of borrowed money to increase the potential return of an investment, which also increases the risk of loss.