You Are Evaluating Two Investments,A and B

question 64

Multiple Choice

You are evaluating two investments,A and B.Data appear below: AB Expected return 10% 12% Highest possible return 20% 14% Lowest possible return 0% - 4% The riskier investment is

• A)A,because it has a lower expected return.
• B)A,because it has a wider range of returns.
• C)B,because it has a possible loss.
• D)B,because its possible highest return is less than A.

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Definitions:

Fixed Costs

Rent, salaries, and insurance charges are examples of expenses that are unaffected by changes in production or sales volumes.

EBIT-EPS Analysis

A tool used to study the effect of financing alternatives on a company's earnings per share and taxes.

Leverage

The strategic use of financial instruments or borrowed capital, such as debt, to increase an investment's potential return.

Profitability

A measure of how efficient a company is at generating profits from its resources, often expressed in terms of margins or ratios.