What Is the Most Likely Reason That Your Instructor Does

question 34

Multiple Choice

What is the most likely reason that your instructor does not have a demand for a top-of-the-line BMW?

• A)He or she does not wish to own such an expensive car.
• B)He or she does not want to own a German-made car.
• C)He or she would prefer to own no car at all.
• D)He or she cannot afford to own such an expensive car.

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Definitions:

Financial Leverage

The use of borrowed money to increase the potential return of an investment.

Unlevered Cost of Capital

The cost of capital for a company with no debt, reflecting the required rate of return on equity for an entirely equity-financed firm.

After-Tax Net Income

The amount of money a company or individual earns after all taxes have been deducted from the gross income, reflecting the actual profit.

Levered Firm

A company that employs debt in its capital structure, as opposed to an unlevered firm which is financed only through equity.