Question 1

Break even in dollars is calculated by dividing sales by the contribution margin in percentage terms.

Accepted Answer

A) True 
 B)False

Question 2

Firms with a high degree of operating leverage are:

Accepted Answer

A)  easily capable of surviving large changes in sales volume. 
B)  usually trading off lower levels of risk for higher profits. 
C)  significantly affected by changes in interest rates. 
D)  trading off higher fixed costs for lower per-unit variable costs. 
A)  easily capable of surviving large changes in sales volume. 
B)  usually trading off lower levels of risk for higher profits. 
C)  significantly affected by changes in interest rates. 
D)  trading off higher fixed costs for lower per-unit variable costs.

Question 3

$\begin{array}{lr}
\text { Sales }(75,000 \text { units }) & \$ 750,000 \
\text { Variable costs } & \underline{225,000} \
\text { Contribution margin } & 525,000 \
\text { Fixed manufacturing costs } & \underline{187,500}\
\text { Operating income } & 337,500 \
\text { Interest } & \mathbf{7 5 , 0 0 0} \
\text { Earnings before taxes } & 262,500 \
\text { Taxes (at } 31 \% \text { ) } & 81.375\
\text { Net income }&\$181,125\
\text { Shares outstanding }&15,000
\end{array}$
-The Degree of Operating Leverage is:

Accepted Answer

A)  1.43x. 
B)  1.56x. 
C)  3.33x. 
D)  2.22x. 
A)  1.43x. 
B)  1.56x. 
C)  3.33x. 
D)  2.22x.

Question 4

A plant relying mostly on manual labour would generally have:

Accepted Answer

A)  more variable than fixed costs. 
B)  more fixed than variable costs. 
C)  all fixed costs. 
D)  all variable costs. 
A)  more variable than fixed costs. 
B)  more fixed than variable costs. 
C)  all fixed costs. 
D)  all variable costs.

Question 5

A high DOL means:

Accepted Answer

A)  there are high labour costs. 
B)  there is high debt. 
C)  there is a large amount of equity. 
D)  there are high fixed costs. 
A)  there are high labour costs. 
B)  there is high debt. 
C)  there is a large amount of equity. 
D)  there are high fixed costs.

Question 6

The analysis of operating leverage assumes that relationships between revenues and costs are constant.

Accepted Answer

A) True 
 B)False

Break even in dollars is calculated by dividing sales by the contribution margin in percentage terms.

Firms with a high degree of operating leverage are:

Sales (75,000 units ) \ 750,000 Variable costs Contribution margin 525,000 Fixed manufacturing costs Operating income 337,500 Interest Earnings before taxes 262,500 Taxes (at 31\% ) 81.375 Net income \1 81,125 Shares outstanding 15,000 -The Degree of Operating Leverage is:

A plant relying mostly on manual labour would generally have:

A high DOL means:

The analysis of operating leverage assumes that relationships between revenues and costs are constant.

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

Filters

Exam 5: Operating and Financial Leverage

Break even in dollars is calculated by dividing sales by the contribution margin in percentage terms.

Firms with a high degree of operating leverage are:

Sales (75,000 units ) \ 750,000 Variable costs Contribution margin 525,000 Fixed manufacturing costs Operating income 337,500 Interest Earnings before taxes 262,500 Taxes (at 31\% ) 81.375 Net income \1 81,125 Shares outstanding 15,000 -The Degree of Operating Leverage is:

A plant relying mostly on manual labour would generally have:

A high DOL means:

The analysis of operating leverage assumes that relationships between revenues and costs are constant.

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

Filters