Operating and Financial Leverage Assignment Part 5

Chapter 05 - Operating and Financial Leverage 62. 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 63. Cash breakeven analysis A. is helpful 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 these. 64. 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 these Chapter 05 - Operating and Financial Leverage 65. Loretta & Nieces fixed costs are $425,000, including $25,000 of depreciation expense. The price of each unit sold is $120, and the variable cost per unit is $60. How many units must the firm sell to reach the cash break-even point? A. less than 7,333 units B. 7,333 units C. More than 7,333 units D. not enough information has been provided to determine the cash break-even point 66. Conservatively leveraged Firm C and highly leveraged Firm H operate at the same level of earnings before interest and taxes where the return on assets is greater than the cost of debt. A. Firm C will have a higher return on equity than H. B. Firm H will have a higher return on equity than C. C. The return on equity will not be affected by financial leverage. D. The return on equity will be the same at an equal level of earnings. 67. 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. Chapter 05 - Operating and Financial Leverage 68. Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true? A. A has a lower break-even point than B, but A's profit grows faster after the break-even. B. A has a higher break-even point than B, but A's profit grows slower after the break-even. C. B has a lower break-even point than A, but A's profit grows faster after break-even. D. B has a lower break-even point than A, and profit grows the same rate for both companies after the breakeven point. 69. Firms with a high degree of operating leverage are A. easily capable of surviving large changes in sales volume B. usually trading off lower levels of risk for higher profits. C. significantly affected by changes in interest rates. D. trading off higher fixed costs for lower per-unit variable costs. 70. 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. Chapter 05 - Operating and Financial Leverage 71. 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. 72. A firm's earnings per share is not impacted by its financing plan at the point when A. debt is equal to equity. B. return on assets equals return on equity. C. the cost of borrowed funds equals the return on equity. D. the cost of borrowed funds equals the return on assets. 73. If EBIT equals $200,000 and interest equals $40,000, what is the degree of financial leverage? A. 5.33x B. 1.25x C. .8125x D. 4.33x Chapter 05 - Operating and Financial Leverage 74. 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. 75. 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. 76. If a firm has the lowest possible degree of operating leverage and the lowest possible degree of financial leverage, then A. DOL equals 1, and DFL equals 0. B. DOL equals 0, and DFL equals 1. C. DOL equals 1, and DFL equals 1. D. none of these Chapter 05 - Operating and Financial Leverage 77. 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. 78. Which of the following is not true about leverage? A. operating leverage influences the top half of the income statement, determining EBIT. B. financial leverage deals with the bottom half of the income statement, determining EPS C. combined leverage utilizes the entire income statement, showing the impact of change in volume on EBIT. D. none of these 79. 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. Chapter 05 - Operating and Financial Leverage 80. Refer to the figure above. The Degree of Operating Leverage is A. 1.40x B. 1.56x C. 3.33x D. 2.22x Chapter 05 - Operating and Financial Leverage 81. Refer to the figure above. The Degree of Financial Leverage is A. 1.29x B. 4.20x C. 3.50x D. 1.18x 82. Refer to the figure above. The Degree of Combined Leverage is A. 2.2x B. 1.9x C. 2.9x D. 1.7x Chapter 05 - Operating and Financial Leverage 83. Refer to the figure above. This firm's break-even point is A. 445 units B. 634 units C. 714 units D. 180 units Chapter 05 - Operating and Financial Leverage 84. Refer to the figure above. The Degree of Operating Leverage (DOL) is A. 1.62x B. 1.80x C. 3.50x D. 1.40x 85. Refer to the figure above. The Degree of Financial Leverage (DFL) is A. 3.50x B. 1.40x C. 1.95x D. 1.25x