1. Which of the following events would be most likely to increase the quantity breakeven point, assuming other factors remain constant?
A. XYZ Corp agrees to increase its sales-commissions paid to employees by 12 percent.
B. Reduced marketplace competition enables LMN Corporation to raise its selling price for finance textbooks.
C. The pressure has subsided: The property owner, who rents space to your small manufacturing plant, has agreed to blacktop the employee and customer parking lot.
D. The city council has finally been persuaded: Your taxi business will pay lower water and sewer rates.
2. The greater the degree of operating leverage, the larger is the variability of
A. revenues.
B. interest.
C. debt financing.
D. operating income.
3. If Sam's Diner has an EBIT of $350,000, what are the diner's net earnings after paying $50,000 in taxes and $34,000 in interest?
A. $311,000
B. $266,000
C. $334,000
D. $434,000
4. If a firm produces 50,000 widgets and sells each unit for $20.50, what is the total revenue generated by this production?
A. $10,250
B. $1,025,000
C. $100,250
D. $10,250,000
5. Which of the following situations would provide corporate management with the strongest rationale to carry forward current-year losses?
A. Management projects taxable income to remain unchanged over the next five years.
B. Congress just passed a very popular bill that reduces marginal federal income tax rates.
C. Early in his first term this year, the President of the United States initiated legislation and signed into law a significant increase
in income tax rates.
D. Management projects pre-tax losses over the next two years, and possibly even four years into the future.
6. Which of the following is a correct statement about corporate losses?
A. They are carried forward three years and then carried back.
B. They offset other sources of income in prior years.
C. They are carried forward to future years.
D. They are carried back three years and then carried forward.
7. Which of the following statements about fixed costs is correct?
A. Fixed costs don't change with the level of output.
B. Fixed costs don't change with the size of the firm.
C. Fixed costs are greater than variable costs.
D. Fixed costs are paid before variable costs.
8. If ABC, Inc. has $650,000 in sales and $230,000 in expenses, what are the firm's earnings before interest and taxes (EBIT)?
A. $850,000
B. $420,000
C. $650,000
D. $325,000
9. A firm does not obtain financial leverage by
A. issuing common stock.
B. issuing bonds.
C. borrowing from the bank.
D. issuing preferred stock.
10. If a firm substitutes fixed for variable costs, which of the following will occur?
A. The degree of operating leverage will be increased.
B. The profits will always be higher.
C. The use of financial leverage will be increased.
D. The break-even level of output will be reduced.
11. Airlines have a high degree of operating leverage because of
A. insufficient government regulation.
B. small fixed expenses.
C. a large use of debt financing.
D. a large investment in fixed assets.
12. A union contract suggests that labor costs may be
A. variable.
B. a noncash expense.
C. undetermined.
D. fixed.
13. Which of the following is an advantage of the sole proprietorship?
A. Limited liability
B. Ease of formation
C. Ease of transfer of ownership
D. Joint ownership
14. Which of the following is a correct statement about fixed costs?
A. Fixed costs do not change with the level of output.
B. Fixed costs do not change with the size of the firm.
C. Fixed costs are paid before variable costs.
D. Fixed costs are greater than variable costs.
15. Unsuccessful use of financial leverage
A. decreases earnings per share.
B. decreases interest expense.
C. increases investors' rate of return.
D. increases earnings per share.
16. Which of the following is a correct statement about operating leverage?
A. Operating leverage is affected by the demand for the product.
B. Operating leverage is associated with less risk and more certainty.
C. Operating leverage results from use of fixed instead of variable cost.
D. Operating leverage results from using debt financing.
17. Break-even analysis is concerned with the relationship between
A. debt and equity.
B. dividends and retained earnings.
C. financial leverage and risk.
D. total costs and revenues.
18. Break-even analysis requires knowing the relationship between
A. sales and earnings.
B. total revenues and fixed costs.
C. sales and total costs.
D. sales and assets.
19. Which of the following tends to vary spontaneously with changes in the level of sales?
A. Paid-in capital
B. Plant
C. Accounts payable
D. Long-term debt
20. Currently, a firm's accounts payable is 5 percent of sales. If the level of sales is anticipated to increase from $10,000 to $20,000, what is the level of accounts payable forecasted by the percent of sales method?
A. $1,000
B. $500
C. $250
D. $750