Gentech,Inc

question 83

Multiple Choice

Gentech,Inc.is an integrated circuit (microchip) manufacturer based out of New Jersey.Its principal products include microprocessors and motherboard chipsets.Selected financial statement values for Gentech are shown in the table,below.What is the degree of financial leverage for Gentech given the change in earnings from Year 1 to Year 2?

• A) 1.12
• B) 1.01
• C) 0.67
• D) 3.11
• E) 1.54

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Definitions:

Call Option

A financial contract giving the option buyer the right, but not the obligation, to buy a specified amount of an underlying asset at a set price within a specified time.

Historical Rate

An exchange rate used for converting transactions that have already occurred, based on the rate in effect at the time of the transaction.

Spot Rate

The current market price used for immediate delivery of a currency, commodity, or financial instrument.

Closing Rate

The exchange rate at the balance sheet date, used to convert the financial statements of a foreign subsidiary to the parent company's presentation currency.