# 1 - The most recent information for Booties Balloons is as follows: Sales $125,000; Variable Operating Expenses $80,000; Gross Profit $45,000; Fixed operating costs $20,000; NOI $25,000; Interest $15,000; Earnings before taxes $10,000; Taxes @ 40% $4,000; and Net Income $6,000. What is Booties Balloons degree of total leverage? Be sure to show your work and round your answer to one decimal to earn full points.

# 2 Financial Institutions Analysis Corp. has provided you with the following information about three companies you are currently evaluating. Which firm would be considered the riskiest and why? You must show your work to earn full points.

Company	DOL	DFL
Jeffery	1.6x	3.2x
Andrew	3.2x	5.4x
Bongo	5.5x	3.2x

# 3 A firm expects to have a 12 percent increase in sales over the coming year. If it has operating leverage equal to 1.25 and financial leverage equal to 3.50, then what will be the percentage change in EPS? You must show your work and round your answer to two decimal places to earn full points.

# 4 True or False? Although a firm may have access to capital under all types of economic conditions, the concept of financial flexibility implies that the firm can obtain capital on acceptable, competitive terms.

# 5 True or False? The issuance of equity for a firm with various financing alternatives signals that the firm has unfavorable prospects which it wants to share with new shareholders according to the signaling theory of capital structure.

# 6 True or False? Financial risk and business risk are related in that, as business risk increases so do financial risk.