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Why the study of leverages is important concept in finance

Assignment Help Corporate Finance
Reference no: EM131334965

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Question. 1. “Leverage being defined as the relationship between two financial variables”. Why the study of leverages is an important concept in finance? (10 marks)

Question. 2. You being the finance manager of AB Ltd. The management is interested in CVP analysis which helps in forecasting profits, in analyzing the changes in profit happens because of changes in sales volume and cost. Discuss such CVP techniques you will use to satisfy the management. (10 marks)

Question. 3. a) Given the following as cash flow from a project, calculate the NPV. The required rate of return is 9 %

year Cash flow 

0 -150000 

1 25000 

2 35000 

3 45000 

4 45000 

5 55000 

Whether the company should accept the project or not ? (5 Marks)

b) Given the following financial statement data, calculate the net operating cycle.
Credit sales 250000 
Cost of goods sold 200000 
Accounts receivable 25000 
Inventory closing balance 23000 
Inventory opening balance 20000 
Accounts payable 17000 

Verified Expert

Financial Risk Measurement:Just like operating leverage, the importance of financial risk measurement leverage is significant but it is also true that the operating leverage becomes highly efficient when it is at the highest sales point but when its sales is falling down then operating leverage could be a problem for you. Managing Risk:Risk management is always the biggest task in finance and therefore the financial leverage or operative leverage can be really very assistive options in financial analysis. It can offer you a perfect opportunity so that you can get perfect and desired total leverage or level of total firm risk.

Reference no: EM131334965

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