Liberty BUSI 320 Chapter 5 Reading Assignment Answers Complete Solutions
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Total costs are dependent on the company’s volume.
Firms with a lower degree of leverage have a higher potential for profit.
Firms that are in financial trouble frequently utilize a cash break-even analysis.
Cash break-even analysis is helpful in analyzing the ________ outlook of the firm, particularly when the firm may be in trouble.
The area on the break-even chart above the break-even point represents
Contribution margin is defined as
The axis of the break-even chart shows the number of units produced and sold.
The axis of the break-even chart shows the revenue and costs.
The total line is based on the volume times the price.
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A company has sales of $1,200,000 (20,000 units at $60 each), variable costs of $30 per unit, fixed costs of $400,000, interest expense of $50,000, and a tax rate of 30%. What is the company’s degree of combined leverage?
The price of a firm’s product is $10, variable costs are $4, and fixed costs per unit are $2. What is the contribution margin?
If the firm’s total costs are $100,000 and total revenue is $75,000, the firm will need to produce and sell units to break-even
Variable costs include all of the following except
The use of debt is recommended for firm’s in industries that
Firms that rely on equity financing will
Financial leverage reflects the amount of fixed costs used by the firm.
During an economic downturn, when a firm’s sales volume is low, a firm that has high variable costs may ___.
During an economic upturn, when a firm’s sales volume is high, a firm that has high fixed costs may ___?
A degree of combined leverage of 2 indicates that a 1% change in sales will be affected by a _______ change in earnings per share
If interest expense for a firm rise, we know that firm has taken on more
The curve on the break even chart that starts at zero on the vertical axis and increases by the amount of the product’s price represents the firm’s
operating and financial leverage enable a firm to magnify its A. dividend B. depreciation C. operating expenses D. returns
The break-even point occurs when the company’s A. total profits=total costs B. total revenue=fixed costs C. total revenue=variable costs D. total revenue=fixed costs+variable costs
The use of debt is recommended for all firms in the industries below EXCEPT those in A. offer some degree of stability B. are operating under positive economic conditions C. are in a positive stage of growth D. are in a positive stage of maturity
Fill in either increases, decreases the degree of operating leverage __________ as the quantity sold ________ because we are further away from the break even point, thus the firm is earning a larger profit and its easier to pay the FC.
Choose: exceeds, equals, or less than EPS is unaffected by financial leverage when the pre-tax return on assets (EBIT/TA) _________ the cost of debt
true or false: the closer a firm is to its break even point, the lower the degree of operating leverage will be.
true or false: firms with cyclical sales should employ a high degree of leverage
A company employing heavy financial leverage has a cost to borrow of 8% and return on assets of 10%. As EBIT increases the firm will greatly expand its
