Question
7. Which one of the following is correct? A. Higher financial leverage (FLEV) generally increases future ROCE and future residual income. Based on the Residual
7. Which one of the following is correct?
A. Higher financial leverage (FLEV) generally increases future ROCE and future residual income. Based on the Residual Income Model (RIM), we conclude higher FLEV always increases firm equity value.
B. For a given period, a company earns positive Operating Income (OI) and its Free Cash Flow is negative, then its Net Operating Assets (NOA) must increase during the period.
C. All else equal, stocks with high payout ratio have high P/E multiples than stocks with low payout ratio.
D. A firm with negative net operating asset may hold net financial obligations.
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