5. Which of the following is true? a. Interest and dividend payments made by a c

Question

5. Which of the following is true? a. Interest and dividend payments made by a corporation are both tax deductible by the paying corporation. b. In general, a firm should expect to earn a high return on investments that have low risk. c. The equity multiplier is an indicator of how efficiently a firm uses its assets. d. Free cash flow represents cash that is available for distribution to the investors of the firm. e. Profit maximization is considered to be a more appropriate goal than shareholder wealth maximization because it considers the timing of the expected returns of the firm. 6. All other things equal, which of the following would lead to low variability in a firm's net income? a. a large amount of variable operating costs relative to fixed operating costs b. a large amount of fixed operating costs relative to variable operating costs c. a small amount of debt financing relative to equity financing d. a large amount of debt financing relative to equity financing e. both a and c f.. both b and d

Explanation / Answer

Question 5: the answer is option d) Free cash flow represents cash that is available for ditribution to the investors of the firm.

Brief Explanation: I think you got it clearly that option a,b and d are false and you are thinking about options c and d. Equity multiplier is the ratio which indicate how much assets is financed by debt. It doesn't indicate the efficiency of assets utilization. Free cash flow is the excess cash available for dividend distribution, and for expansion investment etc.

Question 6: The answer is option e) both a and c

Brief Explanation : a large amount of variable cost and a small amount of debt financing can lower the variability in net income.

Thank You..!!

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