\[\begin{array} { l r } \text { Sales } ( 100,000 \text { units) } & \$ 1,000,000 \\ \text { Variable costs } & \underline { 300,000 } \\ \text { Contribution margin } & 700,000 \\ \text { Fixed manufacturing costs } & \underline { 250,000 } \\ \text { Operating income } & 450,000 \\ \text { Interest } & \underline { 60,000 } \\ \text { Earnings before taxes } & 390,000 \\ \text { Taxes (at } 31 \% \text { ) } & \underline { 120,900 } \\ \text { Net Income } & \underline { \$ 269,100 } \\ \text { Shares outstanding } & 10,000 \end{array}\] -The Degree of Combined Leverage is:

A) 2.79x. B) 1.90x. C) 1.79x. D) 3.46x. A) 2.79x. B) 1.90x. C) 1.79x. D) 3.46x.

\[\begin{array} { l r } \text { Sales } ( 100,000 \text { units) } & \$ 1,000,000 \\ \text { Variable costs } & \underline { 300,000 } \\ \text { Contribution margin } & 700,000 \\ \text { Fixed manufacturing costs } & \underline { 250,000 } \\ \text { Operating income } & 450,000 \\ \text { Interest } & \underline { 60,000 } \\ \text { Earnings before taxes } & 390,000 \\ \text { Taxes (at } 31 \% \text { ) } & \underline { 120,900 } \\ \text { Net Income } & \underline { \$ 269,100 } \\ \text { Shares outstanding } & 10,000 \end{array}\] -If the price per unit increases but the cost structure remains the same:

A) the break-even point rises. B) the degree of combined leverage increases. C) the degree of financial leverage increases. D) the break-even point falls. A) the break-even point rises. B) the degree of combined leverage increases. C) the degree of financial leverage increases. D) the break-even point falls.

Exam 5: Operating and Financial Leverage

Sales (100,000 units) \ 1,000,000 Variable costs Contribution margin 700,000 Fixed manufacturing costs Operating income 450,000 Interest Earnings before taxes 390,000 Taxes (at 31\% ) Net Income Shares outstanding 10,000 -The Degree of Combined Leverage is:

(Multiple Choice)

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Question 41

If fixed costs rise while other variables stay constant:

(Multiple Choice)

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Question 42

Sales volumes lower than the break-even point result in a firm having ___________________.

(Multiple Choice)

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Question 43

If a firm has a 30% change in operating income,and its Degree of Operating Leverage is 3.63,what was its percentage change in unit volume,all other things considered?

(Multiple Choice)

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Question 44

The degree of operating leverage may be defined as:

(Multiple Choice)

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Question 45

Lever Products (LP)is considering the elimination of a press machine.The new press machine should reduce depreciation expenses by $80,000 annually.If LP's total fixed costs were $420,000 last year,what would LP's new break-even point in units if the contribution margin is 3.75 per unit?

(Multiple Choice)

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Question 46

If EBIT equals $280,000 and interest equals $20,000,with a tax rate of 31%,what is the degree of financial leverage?

(Multiple Choice)

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Question 47

The closer a firm is to its break-even point,the lower the degree of operating leverage will be.

(True/False)

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Question 48

Financial leverage deals with:

(Multiple Choice)

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Question 49

Financial leverage is concerned with the use of debt in the business.

(True/False)

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Question 50

Leverage is a strategic choice made by management based on assessment of risk and potential positive cash flows and the availability of financing

(True/False)

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Question 51

The break-even point can be calculated as:

(Multiple Choice)

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Question 52

The combined leverage is the result of the reduction in earnings from fixed costs and from amortization expense.

(True/False)

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Question 53

ECG has a contribution margin of $196,000.If ECG earned $87,000 before taxes in the year,what is the firm's Degree of Combined Leverage?

(Multiple Choice)

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Question 54

From the following income statement for 2005,calculate: A)Degree of financial leverage B)Degree of operating leverage C)Degree of combined leverage Income Statement for the year ended $12 / 31 / 2015$ Sales \ 440,000 Variable cost 240,000 Contribution margin 200,000 Fixed costs 96,000 EBIT 104,000 Interest 19,200 EBT 84,800 Taxes @35\% 29,680 Net Income \ 55,120 Shares outstanding 16,000 EPS \ 5.52

(Essay)

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Question 55

Sales (100,000 units) \ 1,000,000 Variable costs Contribution margin 700,000 Fixed manufacturing costs Operating income 450,000 Interest Earnings before taxes 390,000 Taxes (at 31\% ) Net Income Shares outstanding 10,000 -If the price per unit increases but the cost structure remains the same:

(Multiple Choice)

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Question 56

The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.

(Multiple Choice)

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Question 57

Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach.Which of the following comparative statements about firms A and B is true?

(Multiple Choice)

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Question 58

The degree of operating leverage is a number indicating the relationship between the percentage changes in sales to the percentage change in earnings per share.

(True/False)

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Question 59

If economic conditions were expected to be favourable,an investor would likely prefer a firm with a low degree of leverage.

(True/False)

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Question 60

Sales (100,000 units) \ 1,000,000 Variable costs Contribution margin 700,000 Fixed manufacturing costs Operating income 450,000 Interest Earnings before taxes 390,000 Taxes (at 31\% ) Net Income Shares outstanding 10,000 -The Degree of Combined Leverage is:

If fixed costs rise while other variables stay constant:

Sales volumes lower than the break-even point result in a firm having ___________________.

If a firm has a 30% change in operating income,and its Degree of Operating Leverage is 3.63,what was its percentage change in unit volume,all other things considered?

The degree of operating leverage may be defined as:

Lever Products (LP)is considering the elimination of a press machine.The new press machine should reduce depreciation expenses by $80,000 annually.If LP's total fixed costs were $420,000 last year,what would LP's new break-even point in units if the contribution margin is 3.75 per unit?

If EBIT equals $280,000 and interest equals $20,000,with a tax rate of 31%,what is the degree of financial leverage?

The closer a firm is to its break-even point,the lower the degree of operating leverage will be.

Financial leverage deals with:

Financial leverage is concerned with the use of debt in the business.

Leverage is a strategic choice made by management based on assessment of risk and potential positive cash flows and the availability of financing

The break-even point can be calculated as:

The combined leverage is the result of the reduction in earnings from fixed costs and from amortization expense.

ECG has a contribution margin of $196,000.If ECG earned $87,000 before taxes in the year,what is the firm's Degree of Combined Leverage?

Sales (100,000 units) \ 1,000,000 Variable costs Contribution margin 700,000 Fixed manufacturing costs Operating income 450,000 Interest Earnings before taxes 390,000 Taxes (at 31\% ) Net Income Shares outstanding 10,000 -If the price per unit increases but the cost structure remains the same:

The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.

Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach.Which of the following comparative statements about firms A and B is true?

The degree of operating leverage is a number indicating the relationship between the percentage changes in sales to the percentage change in earnings per share.

If economic conditions were expected to be favourable,an investor would likely prefer a firm with a low degree of leverage.

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

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