Question 1

Break-even analysis is used to study the effect on EBIT of changes in all of the following EXCEPT

Accepted Answer

A) corporate taxes. 
B) prices. 
C) cost structure. 
D) volume. 
A) corporate taxes. 
B) prices. 
C) cost structure. 
D) volume.

Question 2

Financial leverage has to do with

Accepted Answer

A) the usage of fixed cost financial securities to finance a portion of a firm's assets. 
B) using common stock to finance a portion of a firm's assets. 
C) the incurrence of fixed operating costs in the firm's income stream. 
D) a high gross profit margin. 
A) the usage of fixed cost financial securities to finance a portion of a firm's assets. 
B) using common stock to finance a portion of a firm's assets. 
C) the incurrence of fixed operating costs in the firm's income stream. 
D) a high gross profit margin.

Question 3

Financing a portion of a firm's assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to

Accepted Answer

A) business risk. 
B) financial leverage. 
C) operating leverage. 
D) combined leverage. 
A) business risk. 
B) financial leverage. 
C) operating leverage. 
D) combined leverage.

Question 4

Business risk refers to the relative dispersion of a firm's earnings before interest and taxes.

Accepted Answer

A) True 
 B)False

Question 5

Techno Robots produces a functioning toy robot.At a production and sales level of 10,000 robots,the firm has the following information: Selling price per unit = $15 Variable costs per unit = $8 EBIT = $17,500 
a.What is the break-even point in units for the firm?

Accepted Answer

a. Q_BE Sales = $15 × 10,000 robots = $150,

Question 6

Which of the following statements is MOST correct concerning a corporation's optimal capital structure?

Accepted Answer

A) The optimal capital structure maximizes the present value of the interest tax shield. 
B) The optimal capital structure occurs at the point where the market value of the levered firm is maximized. 
C) The optimal capital structure minimizes the present value of financial distress costs and agency costs. 
D) The optimal capital structure occurs where the present value of the interest tax shield equals the present value of the firm's bankruptcy costs. 
A) The optimal capital structure maximizes the present value of the interest tax shield. 
B) The optimal capital structure occurs at the point where the market value of the levered firm is maximized. 
C) The optimal capital structure minimizes the present value of financial distress costs and agency costs. 
D) The optimal capital structure occurs where the present value of the interest tax shield equals the present value of the firm's bankruptcy costs.

Question 7

The control hypothesis suggests that shareholders prefer an increase in the firm's debt in order to reduce the agency costs associated with excessive free cash flow.

Accepted Answer

A) True 
 B)False

Question 8

The break-even model enables the manager of the firm to

Accepted Answer

A) calculate the minimum price of common stock for certain situations. 
B) set appropriate equilibrium thresholds. 
C) determine the quantity of output that must be sold to cover all operating costs. 
D) determine the optimal amount of debt financing to use. 
A) calculate the minimum price of common stock for certain situations. 
B) set appropriate equilibrium thresholds. 
C) determine the quantity of output that must be sold to cover all operating costs. 
D) determine the optimal amount of debt financing to use.

Question 9

A saucer-shaped or U-shaped weighted average cost of capital curve results from the tax deductibility of interest,which results in the downward slope,followed by the recognition of potential financial distress costs,that cause the upward slope as the amount of debt ratio increases.

Accepted Answer

A) True 
 B)False

Question 10

As production levels increase,fixed costs stay the same in total,but decrease on a per unit basis.

Accepted Answer

A) True 
 B)False

Break-even analysis is used to study the effect on EBIT of changes in all of the following EXCEPT

Financial leverage has to do with

Financing a portion of a firm's assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to

Business risk refers to the relative dispersion of a firm's earnings before interest and taxes.

Techno Robots produces a functioning toy robot.At a production and sales level of 10,000 robots,the firm has the following information: Selling price per unit = $15 Variable costs per unit = $8 EBIT = $17,500 a.What is the break-even point in units for the firm?

Which of the following statements is MOST correct concerning a corporation's optimal capital structure?

The control hypothesis suggests that shareholders prefer an increase in the firm's debt in order to reduce the agency costs associated with excessive free cash flow.

The break-even model enables the manager of the firm to

A saucer-shaped or U-shaped weighted average cost of capital curve results from the tax deductibility of interest,which results in the downward slope,followed by the recognition of potential financial distress costs,that cause the upward slope as the amount of debt ratio increases.

As production levels increase,fixed costs stay the same in total,but decrease on a per unit basis.

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

Filters

Exam 12: Determining the Financing Mix

Break-even analysis is used to study the effect on EBIT of changes in all of the following EXCEPT

Financial leverage has to do with

Financing a portion of a firm's assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to

Business risk refers to the relative dispersion of a firm's earnings before interest and taxes.

Techno Robots produces a functioning toy robot.At a production and sales level of 10,000 robots,the firm has the following information: Selling price per unit = $15 Variable costs per unit = $8 EBIT = $17,500 a.What is the break-even point in units for the firm?

Which of the following statements is MOST correct concerning a corporation's optimal capital structure?

The control hypothesis suggests that shareholders prefer an increase in the firm's debt in order to reduce the agency costs associated with excessive free cash flow.

The break-even model enables the manager of the firm to

A saucer-shaped or U-shaped weighted average cost of capital curve results from the tax deductibility of interest,which results in the downward slope,followed by the recognition of potential financial distress costs,that cause the upward slope as the amount of debt ratio increases.

As production levels increase,fixed costs stay the same in total,but decrease on a per unit basis.

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

Filters