Question 1 Which of the following is concerned with the change in operating profit as a result of a change in volume? A. Financial leverage B. Break-even point C. Operating
Question 1 Which of the following is concerned with the change in operating profit as a result of a change in volume? A. Financial leverage B. Break-even point C. Operating leverage D. Combined leverage Question 2 Cash breakeven analysis: A. is ful in analyzing the short-term outlook of the firm, particularly when it is in trouble financially. B. is important when analyzing long-term profitability. C. includes depreciation expense as a fixed cost when calculating the degree of financial leverage. D. none of the above Question 3 The degree of operating leverage may be defined as: A. the percent change in operating income divided by the percent change in unit volume. B. Q (P-VC) divided by Q (P-VC) – FC. C. S – TVC divided by S – TVC – FC. D. all of the above. Question 1 The degree of operating leverage is computed as: A. percent change in operating profit divided by percent change in net income. B. percent change in volume divided by percent change in operating profit. C. percent change in EPS divided by percent change in operating income. D. percent change in operating income divided by percent change in volume. Question 2 Financial leverage deals with: A. the relationship of fixed and variable costs. B. the relationship of debt and equity in the capital structure. C. the entire income statement. D. the entire balance sheet. Question 3 A conservative financing plan involves: A. heavy reliance on debt. B. heavy reliance on equity. C. high degree of financial leverage. D. high degree of combined leverage. Question 1 If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage? A. 5.33x B. 1.23x C. 0.8125x D. 4.33x Question 2 The degree of financial leverage is concerned with the relation between: A. changes in volume and changes in EPS. B. changes in volume and changes in EBIT. C. changes in EBIT and changes in EPS. D. changes in EBIT and changes in operating income. Question 3 When a firm employs no debt: A. it has a financial leverage of one. B. it has a financial leverage of zero. C. its operating leverage is equal to its financial leverage. D. it will not be profitable. Question 1 Combined leverage is concerned with the relationship between: A. changes in EBIT and changes in EPS. B. changes in volume and changes in EPS. C. changes in volume and changes in EBIT. D. changes in EBIT and changes in net income. Question 2 If the business cycle were just beginning its upswing, which firm would you anticipate would be likely to show the best growth in EPS over the next year? Firm A has high combined leverage, and Firm B has low combined leverage. A. Firm A B. Firm B C. Indifferent between the two D. It depends on how much financial leverage each firm has Question 3 The degree of operating leverage is computed as: A. percent change in operating profit divided by percent change in net income. B. percent change in volume divided by percent change in operating profit. C. percent change in EPS divided by percent change in operating income. D. percent change in operating income divided by percent change in volume. Question 1 Ratio analysis can be useful for: A. historical trend analysis within a firm. B. comparison of ratios within a single industry. C. measuring the effects of financing. D. all of the above Question 2 A short-term creditor would be most interested in: A. profitability ratios. B. asset utilization ratios. C. liquidity ratios. D. debt utilization ratios. Question 3 Which two ratios are used in the DuPont system to create return on assets? A. Return on assets and asset turnover B. Profit margin and asset turnover C. Return on total capital and the profit margin D. Inventory turnover and return on fixed assets
