BUSI 320 TERM 3 EXAM Questions and Answers
Verified Solutions Latest Update
Question 1.
at 70,000 units a
Correct Answer: 1% increase in sales volume will produce a 1.5% increase in
operating income
Question 2.
Firms that take a conservative approach to the use of operating leverage may
increase variable costs in lieu of adding ----- costs.
Correct Answer: fixed Financial leverage is defined as the amount of debt used in
the capital structure of the firm
Question 3.
Which factor(s) influence management's decision to follow a more aggressive
approach
to the firm's leverage or a more conservative approach?
Correct Answer: - management's own risk taking desires
- the firm's competitive position
- economic conditions
- growth of the business
Question 4.
Using EBIT instead of Net Income, in the return on assets ratio nulls the effects of
the
different capital structures and tax rates used by different companies. With this in
mind,
if company A has an EBIT of $15,000 and total assets of $199,000 what is the
company
earning on its assets? Give your answer in percent to two decimal places.
Correct Answer: ROA = EBIT/TA = $15K / $199K = 7.54%
Question 5.
At an EBIT level of $40,000 and a DFL of 2, a 1 percent increase in earnings will
produce a ----- percent
increase in earnings per share. 2% In accounting and finance, depreciation
represents a(n) non-cash
outlay The degree of operating leverage can be defined as the the percent change
in operating income
that occurs as a result of a percent change in units sold. True or False: Financial
leverage reflects the
amount of fixed costs used by the firm. False
A company employing heavy financial leverage has a cost to borrow of 8% and
return on
Verified Solutions Latest Update
Question 1.
at 70,000 units a
Correct Answer: 1% increase in sales volume will produce a 1.5% increase in
operating income
Question 2.
Firms that take a conservative approach to the use of operating leverage may
increase variable costs in lieu of adding ----- costs.
Correct Answer: fixed Financial leverage is defined as the amount of debt used in
the capital structure of the firm
Question 3.
Which factor(s) influence management's decision to follow a more aggressive
approach
to the firm's leverage or a more conservative approach?
Correct Answer: - management's own risk taking desires
- the firm's competitive position
- economic conditions
- growth of the business
Question 4.
Using EBIT instead of Net Income, in the return on assets ratio nulls the effects of
the
different capital structures and tax rates used by different companies. With this in
mind,
if company A has an EBIT of $15,000 and total assets of $199,000 what is the
company
earning on its assets? Give your answer in percent to two decimal places.
Correct Answer: ROA = EBIT/TA = $15K / $199K = 7.54%
Question 5.
At an EBIT level of $40,000 and a DFL of 2, a 1 percent increase in earnings will
produce a ----- percent
increase in earnings per share. 2% In accounting and finance, depreciation
represents a(n) non-cash
outlay The degree of operating leverage can be defined as the the percent change
in operating income
that occurs as a result of a percent change in units sold. True or False: Financial
leverage reflects the
amount of fixed costs used by the firm. False
A company employing heavy financial leverage has a cost to borrow of 8% and
return on
