What Is The Prime Reason That Jenny's Discretionary (2024)

FAQs

What Is The Prime Reason That Jenny's Discretionary? ›

What is the prime reason that Jenny's discretionary income is more volatile than her salary? Answer : Her mortgage payments and necessities are fixed. 68. A luxury cell phone maker has a high fixed-cost base and a lot of debt.

Answer. Financial leverage increased Jenny's potential return on investment by allowing her to purchase a house with borrowed funds, which could amplify profits if the property appreciates in value.

How is the scenario of Jenny's changing discretionary income with her changing salary analogous to the nature of equities? A) It shows how the value of equities can fluctuate with changes in a company's profitability.

Expert-Verified Answer

is equal to the change in salary because the fixed costs remain constant. Therefore, as Jenny's salary increases, her discretionary income increases by the same amount, assuming that the fixed costs do not change.

Leverage refers to using debt (borrowed funds) to amplify returns from an investment or project. Companies can use leverage to invest in growth strategies. Some investors use leverage to multiply their buying power in the market.

Leverage can incredibly benefit businesses, allowing them to borrow capital to invest and expand their operations. This means they can access funds without liquidating their assets or increasing the amount of equity available in the business.

What is the prime reason that Jenny's discretionary income is more volatile than her salary? Answer : Her mortgage payments and necessities are fixed. 68. A luxury cell phone maker has a high fixed-cost base and a lot of debt.

Discretionary income is the amount of money you have left after paying for necessary expenses, like taxes, housing and food. You use discretionary income for "extra" things, like entertainment, savings and investments.

When individuals and households spend more of their discretionary income on goods and services, vacations, luxury items, and other nonessential items, money is funneled towards businesses that provide those goods and services.

Discretionary income is the amount of an individual's income that is left for spending, investing, or saving after paying taxes and paying for personal necessities, such as food, shelter, and clothing. Discretionary income includes money spent on luxury items, vacations, and nonessential goods and services.

How does the concept of operating leverage relate to Jenny's situation? ›

Understand that operating leverage refers to the proportion of fixed costs a company has in its cost structure compared to variable costs and in Jenny's situation, her fixed costs such as rent, utilities, or loan payments can be seen as a form of operating leverage.

Fixed expenses refer to recurring costs that remain relatively constant from period to period, while discretionary expenses are non-essential spending that businesses choose to incur. Since a business's fixed expenses aren't always mandatory spending, there's some overlap between the categories.

Leverage uses borrowed capital or debt to increase the potential return of an investment. In real estate, the most common way to leverage your investment is with your own money or through a mortgage. Leverage works to your advantage when real estate values rise, but it can also lead to losses if values decline.

Operating leverage is the name given to the impact on operating income of a change in the level of output. Financial leverage is the name given to the impact on returns of a change in the extent to which the firm's assets are financed with borrowed money.

Leverage increases the return on equity, improving investors' return on capital invested; investors have fewer funds at risk and their ownership percentages do not get diluted (debt financing does not reduce their control of the entity or profit allocation).

The use of financial leverage in purchasing an income-producing property can affect the amount of cash required at acquisition, the before-tax cash flows, the before-tax equity reversion, and the ultimate return on invested equity.