The Price of a Stock Increased from $32 to $38

question 19

Multiple Choice

The price of a stock increased from $32 to $38. Using phi, what are the primary and secondary support areas for the stock?

• A)$35.33; $33.67
• B)$33.67; $35.33
• C)$35.71; $34.29
• D)$38.14; $36.99
• E)$36.99; $38.14

Understand the concept of financial leverage and how it impacts stock price and firm value.

Analyze the conditions under which financial leverage benefits shareholders.

Distinguish between the effects of financial leverage on various performance metrics such as ROE, EPS, and EBIT.

Grasp the implications of fixed-cost financing and the meaning of financial leverage.

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Definitions:

Matching Principle

An accounting principle that dictates that expenses should be recorded in the same period as the revenues they helped to generate.

Asset's Cost

Represents the total amount incurred to acquire an asset and make it operational, including purchase price and all other expenses necessary to get the asset into a usable state.

Service Life

The estimated period that an asset is expected to be useful in the operations of a business.

Taxable Income

The amount of income used to calculate an individual's or a company's income tax due, typically gross income minus deductions and exemptions.