Question 1
Capital structure may be defined as
◦ a collection of securities assembled by an investor.
◦ a schedule of projects that have positive NPVs.
◦ the use of bank loans by a firm.
◦ the mix of debt and equity.
◦ another term for the investment opportunities' schedule.
Question 2
Durosteel Shafts Inc. supplies cam shafts to GM for their popular Chevy Malibu model. Automobile sales fell significantly during the recent financial crisis. Now, at the end of Year 1, GDP is growing again and GM is forecasting an increase in automobile sales of 11% over the coming year. Use the data in the table to estimate Durosteel's operating profit margin (EBIT/Sales) for Year 2.
| Durosteel Shafts Inc. ($000,000s) | | |
| | Year 1
(Actual) | Year 2 (Forecast) |
| Sales | $920 | $1,021 |
| EBIT | $60 | |
| Operating Profit Margin | 6.52% | |
| Operating Leverage | 1.5 | |
◦ 16.50%
◦ 7.24%
◦ 6.84%
◦ 6.52%
◦ 8.45%3
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