Question1: A high degree of variability in a firm's earnings before interest and taxes refers to ______.
[A] financial leverage
[B] operating leverage
[C] business risk
[D] financial risk
Question2: Operating leverage refers to ________.
[A] The incurrence of fixed operating costs in the firm's income stream
[B] A high degree of variable costs of production
[C] Financing a portion of the firm's assets with securities bearing a fixed rate of return
[D] The additional chance of insolvency borne by the common shareholder
Question3: Ames Drilling Corp. reported that its sales and EBIT increased by 10%, but its EPS increased by 30%. The much larger change in earnings per share could be the result of ____.
[A] a high percentage of credit sale collections from prior years
[B] high fixed costs of production
[C] high operating leverage
[D] high financial leverage
Question4: A plant may remain operating when sales are depressed ____.
[A] in an effort to cover at least some of the variable cost
[B] unless variable costs are zero when production is zero
[C] if the selling price per unit exceeds the variable cost per unit
[D] to help the local economy