Using leverage affects the risk and returns to stockholders

Assignment Help Financial Management

Reference no: EM131921573

1. Using leverage affects the risk and returns to stockholders. However, from the manager's perspective, there is no point in using leverage to cater to investors' preferences because

A. M&M propositions show that firm value is decreasing in leverage

B. M&M propositions show that the cost of equity does not depend on leverage

C. Investors generally want returns with low volatility

D. Investors can use homemade leverage

2. A new machine will cost $30,000 and is expected to produce income of $7,000 in year 1, $9,000 in year 2, $12,000 in year 3 and $15,000 in year 4. The company will depreciate the equipment fully using the straight-line method over the same four year period. What is the average accounting return (ARR) of the project?

a. ?35.83%

b. ?46.66%

c. ?71.66%

d. ?143%

Reference no: EM131921573

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