Amalgamated Mining,Inc

question 117

Multiple Choice

Amalgamated Mining,Inc.has very high operating leverage due to the capital intensive nature of the steel business.The firm's CEO is concerned about the variability in the firm's EPS if sales should drop,and decides to take action.Which of the following will reduce the variability in the firm's EPS for a given change in sales?

• A) The CEO may increase the firm's financial leverage and hence reduce the variability by using non-shareholder money to support the business.
• B) The CEO may decrease the firm's financial leverage, thus lowering the firm's total leverage.
• C) The CEO may increase the firm's total leverage by raising money from the sale of common stock.
• D) The CEO may issue more corporate bonds and use the proceeds to pay off short-term liabilities.

Familiarity with administrative principles in management practices.

Understand the criteria for effective organization in management processes.

Understand the basic definitions and purposes of various types of bonds and funds.

Recognize the characteristics and functions of corporate bonds.

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Definitions:

Outcome

The result or consequence of a particular process, often used to describe the end result of a chemical reaction.

No Reaction

A condition where no chemical change occurs between reactants under specified circumstances.

Reaction

A process in which one or more substances are changed into others by reorganization of constituent atoms.

Reaction

A chemical change that occurs when substances combine or decompose forming new compounds.