FIN300 Final Exam QUESTIONS N
ANSWERS 2025/2026
Firms with relatively low fixed operating costs and high variable operating costs can best be
described as: - CORRECT ANSWER ✔✔having a low degree of operating leverage
the sales break-even point is defined as - CORRECT ANSWER ✔✔the level of sales that a firm
mist reach to cover total operating costs
whenever fixed costs are greater than zero, DOL is: - CORRECT ANSWER ✔✔greater than 1
firms with high fixed operating costs: - CORRECT ANSWER ✔✔tend to have low variable costs
the financial managers major financing decision is selecting the debt/equity mix that - CORRECT
ANSWER ✔✔maximizes the value of the firm
leverage in a business is caused by the presence of - CORRECT ANSWER ✔✔fixed costs
which of the following statements is false? - CORRECT ANSWER ✔✔the breakeven point (units
sold) is inversely related to the level of fixed costs
the greater the degree of operating leverage - CORRECT ANSWER ✔✔the higher the business
risk
financial leverage is caused by the presence of ____ and ____ the variability of _____ for any
change in operating income - CORRECT ANSWER ✔✔fixed financing costs; increases; net income
, financing an automated plant with debt adds financial leverage to operating leverage and
increases the ____ leverage by a multiplier effect - CORRECT ANSWER ✔✔combined
a leveraged buyout (LBO) has the immediate effect of - CORRECT ANSWER ✔✔increasing
financial leverage
two advantages of using debt in the capital structure of a corporation from the shareholders
perspective are - CORRECT ANSWER ✔✔interest is tax deductible, and the firm has the
opportunity to leverage income to a higher level through the use of fixed cost debt
as business increase the proportion of debt in the capital structure from zero to nearly one
hundred percent debt, the WACC first declines through moderate uses of debt then increases
after some minimum point. The minimum point of the WACC points to the debt/firm value ratio
that - CORRECT ANSWER ✔✔maximizes the market value of the firm
working capital is the amount of - CORRECT ANSWER ✔✔cash and near-cash assets
a base level of inventory, cash, marketable securities, prepaid expenses, and accounts
receivables is best described as - CORRECT ANSWER ✔✔permanent current assets
the level of net working capital is affected by all but which of the following - CORRECT ANSWER
✔✔retained earnings
the tradeoff of holding cash versus a high returning fixed asset is called - CORRECT ANSWER
✔✔liquidity versus profitability trade off
working capital includes all but which of the following - CORRECT ANSWER ✔✔accounts
payable
ANSWERS 2025/2026
Firms with relatively low fixed operating costs and high variable operating costs can best be
described as: - CORRECT ANSWER ✔✔having a low degree of operating leverage
the sales break-even point is defined as - CORRECT ANSWER ✔✔the level of sales that a firm
mist reach to cover total operating costs
whenever fixed costs are greater than zero, DOL is: - CORRECT ANSWER ✔✔greater than 1
firms with high fixed operating costs: - CORRECT ANSWER ✔✔tend to have low variable costs
the financial managers major financing decision is selecting the debt/equity mix that - CORRECT
ANSWER ✔✔maximizes the value of the firm
leverage in a business is caused by the presence of - CORRECT ANSWER ✔✔fixed costs
which of the following statements is false? - CORRECT ANSWER ✔✔the breakeven point (units
sold) is inversely related to the level of fixed costs
the greater the degree of operating leverage - CORRECT ANSWER ✔✔the higher the business
risk
financial leverage is caused by the presence of ____ and ____ the variability of _____ for any
change in operating income - CORRECT ANSWER ✔✔fixed financing costs; increases; net income
, financing an automated plant with debt adds financial leverage to operating leverage and
increases the ____ leverage by a multiplier effect - CORRECT ANSWER ✔✔combined
a leveraged buyout (LBO) has the immediate effect of - CORRECT ANSWER ✔✔increasing
financial leverage
two advantages of using debt in the capital structure of a corporation from the shareholders
perspective are - CORRECT ANSWER ✔✔interest is tax deductible, and the firm has the
opportunity to leverage income to a higher level through the use of fixed cost debt
as business increase the proportion of debt in the capital structure from zero to nearly one
hundred percent debt, the WACC first declines through moderate uses of debt then increases
after some minimum point. The minimum point of the WACC points to the debt/firm value ratio
that - CORRECT ANSWER ✔✔maximizes the market value of the firm
working capital is the amount of - CORRECT ANSWER ✔✔cash and near-cash assets
a base level of inventory, cash, marketable securities, prepaid expenses, and accounts
receivables is best described as - CORRECT ANSWER ✔✔permanent current assets
the level of net working capital is affected by all but which of the following - CORRECT ANSWER
✔✔retained earnings
the tradeoff of holding cash versus a high returning fixed asset is called - CORRECT ANSWER
✔✔liquidity versus profitability trade off
working capital includes all but which of the following - CORRECT ANSWER ✔✔accounts
payable
