CMA Study Group

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  • 1.  CMA Pop Quiz - Q198

    Posted 09-22-2017 01:32 PM
    ​Firms with high degrees of financial leverage would be best characterized as having

    a. high debt-to-equity ratios.
    b. zero coupon bonds in their capital structures.
    c. low current ratios.
    d. high fixed-charge coverage

    CMA Exam Part 2


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    Morgan Del Rio
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    IMA
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  • 2.  RE: CMA Pop Quiz - Q198

    Posted 10-25-2017 05:23 PM
    Answer should be A) High debt to equity
    High Degree of Financial Leverage (DOF) means the firm is having a high fixed charge (or interest payment). Which means the firm capital structure has high debt.

    BE CAREFUL: answer D. is High Fixed Charge "Coverage" which is the ability to cover their Fixed Charge. A high fixed charge coverage means they have good ability pay => high EBIT => Low DOFL, not high. => Answer D is incorrect.

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    Best,
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