Exam 12: Determining the Financing Mix

A CEO concerned about variability of earnings per share may try to offset high operating leverage with a capital structure that is mostly debt in order to take advantage of the interest tax shield.

(True/False)

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Question 21

Operating leverage has to do with

(Multiple Choice)

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Question 22

All of the following will make the break-even point increase,other things equal,EXCEPT

(Multiple Choice)

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Question 23

The tax shield on interest is calculated by multiplying the interest rate paid on debt by the principal amount of the debt and the firm's marginal tax rate.

(True/False)

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Question 24

A decrease in the level of production results in decreased fixed cost per unit.

(True/False)

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Question 25

What are the three determinants of the volatility of a firm's earnings?

(Essay)

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Question 26

If a company sells bonds and uses the proceeds to buy back common stock,the company's financial leverage with increase.

(True/False)

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Question 27

The market value of a leveraged firm is equal to the market value of an unleveraged firm

(Multiple Choice)

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Question 28

Which of the following statements about operating leverage is true?

(Multiple Choice)

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Question 29

Because fixed costs do not vary with a firm's revenues,firms with high levels of fixed cost enjoy lower levels of operating risk because their costs are more certain,making budgeting easier.

(True/False)

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Question 30

Over the relevant range of output,fixed costs remain unchanged.

(True/False)

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Question 31

Above the EBIT-EPS indifference point,a more heavily levered financial plan will produce greater EPS.

(True/False)

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Question 32

If a firm's production process requires high operating leverage (use of fixed costs),then the firm should finance its assets with debt,so that the cost of capital will be reduced and financing costs will remain fixed.

(True/False)

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Question 33

If a firm has no operating leverage and no financial leverage,then a 10% increase in sales will have what effect on EPS?

(Multiple Choice)

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Question 34

The independence hypothesis suggests that the total market value of the firm's outstanding securities is unaffected by its capital structure.

(True/False)

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Question 35

All of the following are likely to result in the use of less debt in a company's capital structure EXCEPT

(Multiple Choice)

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Question 36

The optimal capital structure occurs when operating leverage equals financial leverage.

(True/False)

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Question 37

Depreciation is considered a fixed cost.

(True/False)

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Question 38

Operating leverage refers to

(Multiple Choice)

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Question 39

Break-even analysis assumes that a multiproduct firm maintains a constant production and sales mix.

(True/False)

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Question 40

Showing 21 - 40 of 156

A CEO concerned about variability of earnings per share may try to offset high operating leverage with a capital structure that is mostly debt in order to take advantage of the interest tax shield.

Operating leverage has to do with

All of the following will make the break-even point increase,other things equal,EXCEPT

The tax shield on interest is calculated by multiplying the interest rate paid on debt by the principal amount of the debt and the firm's marginal tax rate.

A decrease in the level of production results in decreased fixed cost per unit.

What are the three determinants of the volatility of a firm's earnings?

If a company sells bonds and uses the proceeds to buy back common stock,the company's financial leverage with increase.

The market value of a leveraged firm is equal to the market value of an unleveraged firm

Which of the following statements about operating leverage is true?

Because fixed costs do not vary with a firm's revenues,firms with high levels of fixed cost enjoy lower levels of operating risk because their costs are more certain,making budgeting easier.

Over the relevant range of output,fixed costs remain unchanged.

Above the EBIT-EPS indifference point,a more heavily levered financial plan will produce greater EPS.

If a firm's production process requires high operating leverage (use of fixed costs),then the firm should finance its assets with debt,so that the cost of capital will be reduced and financing costs will remain fixed.

If a firm has no operating leverage and no financial leverage,then a 10% increase in sales will have what effect on EPS?

The independence hypothesis suggests that the total market value of the firm's outstanding securities is unaffected by its capital structure.

All of the following are likely to result in the use of less debt in a company's capital structure EXCEPT

The optimal capital structure occurs when operating leverage equals financial leverage.

Depreciation is considered a fixed cost.

Operating leverage refers to

Break-even analysis assumes that a multiproduct firm maintains a constant production and sales mix.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

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