test_bank_quiz_for_chap_5 finance A+

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Test Bank Quiz for Chapter 5


Finance (Saskatchewan Polytechnic)




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Chapter 05 - Operating and Financial Leverage

Chapter 05
Operating and Financial Leverage




Multiple Choice Questions


1. The concept of operating leverage involves the use of to magnify returns at
high levels of operation.
A. fixed costs
B. variable costs
C. marginal costs
D. semi-variable costs


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-02 Calculate break-even in units and in dollars.
Topic: 05-01 Leverage in a Business



2. In break-even analysis the contribution margin is defined as:
A. sales minus variable costs.
B. sales minus fixed costs.
C. variable costs minus fixed costs.
D. fixed costs minus variable costs.


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-02 Break-Even Analysis

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Chapter 05 - Operating and Financial Leverage



3. At the break-even point, a firm's profits are:
A. greater than zero.
B. less than zero.
C. equal to zero.
D. not enough information to tell.


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-02 Break-Even Analysis



4. If a firm has a break-even point of 20,000 units and the contribution margin on the firm's
single product is $3.00 per unit and fixed costs are $60,000, what will the firm's net income be
at sales of 30,000 units?
A. $90,000
B. $30,000
C. $15,000
D. $45,000


Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-02 Break-Even Analysis



5. If sales volume exceeds the break-even point, the firm will experience:
A. an operating loss.
B. an operating profit.
C. an increase in plant and equipment.
D. an increase in share price.




5-2

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Chapter 05 - Operating and Financial Leverage

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-02 Break-Even Analysis



6. The break-even point can be calculated as:
A. variable costs divided by contribution margin.
B. total costs divided by contribution margin.
C. variable cost times contribution margin.
D. fixed cost divided by contribution margin.


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-02 Break-Even Analysis



7. A highly automated plant would generally have:
A. more variable costs than fixed costs.
B. more fixed costs than variable costs.
C. all fixed costs.
D. all variable costs.


Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 05-01 Define leverage as a method to magnify earnings available to the firm's common shareholders.
Topic: 05-03 A More Conservative Approach



8. 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